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 forecast sales figures: Actual Forecast Additional Information November $240,000 January $320,000 April forecast $360,000 December 260,000 February 360,000 March 370,000 Of the firm's sales, 60 percent are for cash and the remaining 40 percent are on credit. Of credit sales, 30 percent are paid in the month after sale and 70 percent are paid in the second month after the sale. Materials cost 30 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 15 percent of sales and is paid in the month of sales. Overhead expense is $22,000 in cash per month. Depreciation expense is $10,200 per month. Taxes of $8,200 will be paid in January, and dividends of $3,000 will be paid in March. Cash at the beginning of January is $84,000, and the minimum desired cash balance is $79,000. a. Prepare a schedule of monthly cash receipts for January, February, and March. Harry's Carryout Stores Cash Receipts Schedule December January November February March Sales Credit sales Cash sales One month after sale Two months after sale Total cash receipts 0 $ 0 $ 0

Answer 1

a.			Cash receipts schedule
					November	December	January	February	March
	Sales				240000	260000	320000	360000	370000
	Credit sales		(40% of sales)		96000	104000	128000	144000	148000
	Cash sales		(60% of sales)				192000	216000	222000
	One month after sale						31200	38400	43200
							(104000*30%)	(128000*30%)	(144000*30%)
	Two months after sale						67200	72800	89600
							(96000*70%)	(104000*70%)	(128000*70%)
	Total cash receipts						290400	327200	354800
b.			Cash payments schedule
					January	February	March
	Payments for purchases			(Note:1)	96000	108000	111000
	Labor expense		(40% of sales)		128000	144000	148000
	Selling and administrative		(15% of sales)		48000	54000	55500
	Overhead				22000	22000	22000
	Taxes				8200
	Dividends						3000
	Total cash payments				302200	328000	339500
	Note:1
	Payments for purchases:
					December	January	February	March
	Next month sales			a	320000	360000	370000	360000
	Material cost			b=a*30%	96000	108000	111000	108000
	Payment:
	One month after purchase					96000	108000	111000
c.			Cash budget
					January	February	March
	Total cash receipts				290400	327200	354800
	Total cash payments				302200	328000	339500
	Net cash flow				-11800	-800	15300
	Beginning cash balance				84000	79000	79000
	Cumulative cash balance				72200	78200	94300
	Monthly loan (or repayment)				6800	800	-7600
					(79000-72200)	(79000-78200)
	Ending cash balance				79000	79000	86700
	Cumulative loan balance				6800	7600	0
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