firm
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 | $ 250,000 | January | $ 380,000 | April forecast | $ 390,000 | ||
| December | 320,000 | February | 420,000 | ||||
| March | 400,000 | ||||||
| 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 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 10 percent of sales and is also paid in the month of sales. Overhead expense is $30,500 in cash per month. |
| Depreciation expense is $10,500 per month. Taxes of $8,500 will be paid in January, and dividends of $4,500 will be paid in March. Cash at the beginning of January is $90,000, and the minimum desired cash balance is $78,000. |
| 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 | |||||
| Collections: | |||||
| 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 | $ | $ | $ |
| c. | Prepare a monthly cash budget with borrowings and repayments for January, February, and March.(Leave no cells blank – be certain to enter “0” wherever required. Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.) |
| Harry’s Carryout StoresCash Budget | ||||
| December | January | February | March | |
| Total cash receipts | $ | $ | $ | |
| Total cash payments | ||||
| Net cash flow | $ | $ | $ | |
| Beginning cash balance | ||||
| Cumulative cash balance | $ | $ | $ | |
| Monthly loan (repayment) | ||||
| Ending cash balance | $ | $ | $ | |
| Cumulative loan balance | $ | $ | $ | $ |
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