Harry’s Carryout Stores has eight locations. The firm wishes to expand by two mo

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:

     

    

Of the firm’s sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 50 percent are paid in the month after sale and 50 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 also paid in the month of sales. Overhead expense is $38,000 in cash per month.

    

     Depreciation expense is $12,000 per month. Taxes of $10,000 will be paid in January, and dividends of $12,000 will be paid in March. Cash at the beginning of January is $120,000, and the minimum desired cash balance is $115,000.

    

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

    

Harry’s Carryout Stores
Cash Receipts Schedule

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

     

Harry’s Carryout Stores
Cash Payments Schedule

    

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 Stores

Actual Forecast Additional Information   November $ 400,000 January $ 680,000 April forecast $ 540,000   December 620,000 February 720,000 March 550,000

Explanation / Answer

a) Cash receipts November December January February March April Sales 400000 620000 680000 720000 550000 540000 Credit sales - 50% 200000 310000 340000 360000 275000 270000 Collections      Cash sales 200000 310000 340000 360000 275000 270000       One month after sale 100000 155000 170000 180000 137500      second month after sale 100000 155000 170000 180000 Total cash receipts 595000 685000 625000 b) Cash payment December January February March payment for purchases following months sale 680000 720000 550000 540000 Material cost - 30% 204000 216000 165000 162000 Payment in following month 204000 216000 165000 Cash payment schedule January February March Payment for purchases 204000 216000 165000 Labor expenses - 40% 272000 288000 220000 selling & administrative expenses - 15% 102000 108000 82500 overhead expenses 38000 38000 38000 Taxes 10000 Dividends 12000 Total cash payments 626000 650000 517500 c) Monthly cash budget December January February March Total cash receipts 595000 685000 625000 Total cash payments 626000 650000 517500 Net cash flow -31000 35000 107500 Beginning cash balance 120000 115000 124000 cummulative cash balance 89000 150000 231500 monthly loan ( repayment) 26000 -26000 0 Ending cash balance 115000 124000 231500 Cumulative loan balance 26000 0 0

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