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	$460,000		January	$540,000		April forecast	$470,000
December	480,000		February	580,000
			March	480,000

Of the firm’s sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 35 percent are paid in the month after sale and 65 percent are paid in the second month after the sale. Materials cost 40 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 35 percent of sales and is paid for in the month of sales. Selling and administrative expense is 15 percent of sales and is also paid in the month of sales. Overhead expense is $26,000 in cash per month.
  
Depreciation expense is $11,300 per month. Taxes of $9,300 will be paid in January, and dividends of $8,500 will be paid in March. Cash at the beginning of January is $106,000, and the minimum desired cash balance is $101,000.

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 b. Prepare a schedule of monthly cash payments for January, February, and March Harry's Carryout Stores Cash Payments Schedule January February March Payments for purchases Labor expense Selling and administrative Overhead Taxes Dividends Total cash payments 0 S

Answer 1

Cash Receipts Schedule
	November	December	January	February	March
Sales	$ 460,000.00	$   480,000.00	$ 540,000.00	$ 580,000.00	$ 480,000.00
Credit Sales	$ 230,000.00	$   240,000.00	$ 270,000.00	$ 290,000.00	$ 240,000.00
Cash Sales	$ 230,000.00	$   240,000.00	$ 270,000.00	$ 290,000.00	$ 240,000.00
One month after sale			$    84,000.00	$    94,500.00	$ 101,500.00
Two months after sale			$ 149,500.00	$ 156,000.00	$ 175,500.00
Total cash receipts			$ 503,500.00	$ 540,500.00	$ 517,000.00

Cash Payments Schedule
	January	February	March
Payments for purchases	$ 216,000.00	$   232,000.00	$ 192,000.00
Labor expense	$ 189,000.00	$   203,000.00	$ 168,000.00
Selling and administrative	$    81,000.00	$     87,000.00	$    72,000.00
Overhead	$    26,000.00	$     26,000.00	$    26,000.00
Taxes	$      9,300.00
Total cash payments	$ 521,300.00	$   548,000.00	$ 458,000.00

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