Question

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecasted sales figures:

    

Actual			Forecast			Additional Information
November	$420,000		January	$500,000		April forecast	$450,000
December	440,000		February	540,000
			March	460,000

Of the firm’s sales, 40 percent are for cash and the remaining 60 percent are on credit. Of credit sales, 20 percent are paid in the month after sale and 80 percent are paid in the second month after the sale. Materials cost 25 percent of sales and are purchased and received each month in an amount sufficient to cover the following month’s expected sales. Materials are paid for in the month after they are received. Labor expense is 40 percent of sales and is paid for in the month of sales. Selling and administrative expense is 20 percent of sales and is also paid in the month of sales. Overhead expense is $33,500 in cash per month.
  
Depreciation expense is $11,100 per month. Taxes of $9,100 will be paid in January, and dividends of $7,500 will be paid in March. Cash at the beginning of January is $102,000, and the minimum desired cash balance is $97,000.

a. Prepare a schedule of monthly cash receipts for January, February, and March.

	Harry’s Carryout Stores Cash Receipts Schedule November December January February March Sales Credit sales Cash sales One month after sale Two months after sale Total cash receipts $0 $0 $0

b. Prepare a schedule of monthly cash payments for January, February, and March.
  
January February March

Payments for purchases

Labor expense

Selling and administrative

Overhead

Taxes

Dividends

Total cash payments
  
c. Prepare a monthly cash budget with borrowings and repayments for January, February, and March. (Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.)

	Harry’s Carryout Stores Cash Payments Schedule January February March Total cash receipts Total cash payments Net cash flow 0 0 0 Beginning cash balance Cumulative cash balance 0 0 0 Monthly loan (or repayment) Ending cash balance 0 0 0 Cumulative loan balance

The boxes for B would not show up unfortunately.  

Answer 1

Description	November	December	January	February	March	April
Sale-Quantity
Sale revenue	420,000	440,000	500,000	540,000	460,000	450,000
Cash Sale-40%	168,000	176,000	200,000	216,000	184,000	180,000
Credit Sale-60%	252,000	264,000	300,000	324,000	276,000	270,000
Credit sale collection- next month-20%		50,400	52,800	60,000	64,800	55,200
Credit sale collection- second month-80%		-	201,600	211,200	240,000	259,200
Monthly sale collection		226,400	454,400	487,200	488,800	494,400
Cash payment Budget
Material Cost
25% of Sale revenue of next month	110,000	125,000	135,000	115,000	112,500	-
Labor Cost
40% of Sale revenue of same month	168,000	176,000	200,000	216,000	184,000	180,000
Selling and Administrative overhead
20% of Sale revenue of same month	84,000	88,000	100,000	108,000	92,000	90,000
Overhead expene	33,500	33,500	33,500	33,500	33,500	33,500
Taxes payment			9,100
Dividend payment					7,500
Total Cash payment			477,600	472,500	429,500
Monthly cash budget
			January	February	March
Total cash receipts			454,400	487,200	488,800
Total cash payments			(477,600)	(472,500)	(429,500)
Net cash flow			(23,200)	14,700	59,300
Beginning cash balance			102000	97,000	97,000
Cumulative cash balance			78,800	111,700	156,300
Monthly loan (or repayment)			18,200	(14,700)	(3,500)
Ending cash balance			97000	97000	152,800
Cumulative loan balance			18,200	3,500	-