Question

Jim Daniels Health Products has eight stores. The firm wants to expand by two more stores and needs a bank loan to do this. Mr. Hewitt, the banker, will finance construction if the firm can present an acceptable three month financial plan for January through March. Following are actual and forecasted sales figures: Actual Forecast November $440,000 January $520,000 December 460,000 February 560,000 March 580,000 Additional Information $570,000 forecast of the firm's sales, 40 percent are for cash and the remaining 60 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 50 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. Labour expense is 30 percent of sales and is paid in the month of sales. Selling and administrative expense is 4 percent of sales and is also paid in the month of sales. Overhead is $40,000 In cash per month: Amortization expense is $11,200 per month. Taxes of $8,000 will be paid in January and dividends of $8.000 will be paid in March. Cash at the beginning of January is $104,000, and the minimum desired cash balance is $99.000.

Answer 1

Answer Cash Flow statement - Cash flow statement shows inflows and outflows of cash during the particular month. This is helpful in the for what amount of cash required in the respective month. It is helpful in analysing the firm's cash requirement Schedule of Cash Receipts January 520000 December 460000 184000 276000 Februgro March 569000 580000 224000 232000 208000 312000 33 6000 348000 I november sales 449000 Cash Sales @ 40% | 176000 Credit sales @ 60% | 264000 30% Collection of Gedit sales in next month 70% Gllection of Credjie Sales in second month after sales 79200 82800 93600 100800 U 184800 193200 218400 Tv) Cash Receipts hom sales and Accounts Receivable 475600 1510800 | 551200

December January February March 10000 APOLL 57001 460000 Sigour Scoonu Schedule of Goh Payments rgutlull9.5 Sales Cost of Material @ s0% that are plochased to recover next months expected sales 2.80000 290000 28 500 260000 2.8100 26600 990000 Payment of Material in next months 156000 168000 174000 Labour Expense @ 30% of sales Selling and Adminishq Huel Expenst a 4% of sales 20800 23100 40000 4600D 40000 8000 Overherts Taxes Dividends cash payments Total II to LT) (sum) 8000 510400 1535900 484800 cash flow stpliment 99000 99000 Pautjulaus Begining Cash Balance ti (qsh Receipts - Gsh payments [ January February March 10 4000 475600 510800 551200 (984800) | (510400) | (535200) 99400 14800 4200 (400) Monthly 1099 / [Repayment) (Byf. fij) || Ending Cash Bq1994 115000 (16000) 99000 99000 99000 is non-cash expenditure hence not included in Amortination Expense Gsh flow stylement