Financial Forecasting The Martin Corporation makes cellphone cases which it sells to merchandisers at $1,325 for a case of 100. Mr. Martin is the owner; he manages the inventory and the finances for the company. He estimates that his sales for the next six months to be: Month January February March April May June Projected Sales $ 828,125 $ 662,500 $ 927,500 $ 894,375 $ 629,375 $ 728,750 # of units 62,500 50,000 70,000 67,500 47,500 55,000 Last year Martin Corporation's sales were $569,750 in November and in December were $960,625 (72,500 cellphone cases). Mr. Martin has a meeting scheduled with his banker to arrange financing for the next quarter. He is relying on you, as his finance manager to prepare projections to present to the bank. He is expecting you to use his sales forecast and the information below to prepare a monthly cash budget, monthly and quarterly pro forma income statements and all necessary supporting schedules for the first quarter. Based on history, Martin Corporation expects to collect 60 percent of its accounts receivable 30 days after sales and balance of the accounts receivable the following month (two months after the sale). It pays for materials 30 days after receipt. Mr. Martin prefers to keep a two-month supply of inventory in stock in case of higher sales. Inventory at the beginning of December was 150,000 units, not the desired inventory level. The major cost of production is the purchase of raw materials in the form of plastic, which is cut, shaped and finished. Last year, raw materials had a cost of $525 per 100 cellphone cases but the material vendor has advised that the cost will increase, effective January 1, to $530 per 100 cellphone cases. The Martin Corporation uses FIFO inventory accounting. Labor is paid per unit and costs are $200 per 100 units and are expected to remain the same throughout the first quarter. Overhead is allocated at $79 per 100 units, and selling and administrative costs are 20 percent of sales. Labor expense and overhead are paid in the month occurred, while interest and taxes are paid quarterly. Martin Corporation usually maintains a minimum cash balance of $20,000, and it puts its excess cash in marketable securities. The average tax rate is 35%, the company usually pays out 40% of net income in dividends to stockholders. Marketable securities are sold before funds are borrowed when a cash shortage occurs. Do not account for interest on any short-term borrowings. Interest of $4,500 on the long-term debt is paid in March, but is allocated over each month for accounting purposes. Tax and dividends are paid in March. Martin Corporation Balance Sheet 12/31/20X1 Assets $ 30,000 1,188,525 904,500 $ 2,123,025 $ 1,100,000 800,000 Current Assets: Cash Accounts Receivable Marketable Securities Inventory Total current assets Fixed assets: Plant and equipment Less accumulated depreciation Net plant and equipment Total Assets Liabiliities and Stockholders' equity Current liabiliites Accounts Payable Notes Payable Long Term Debt Common Stock Retained earnings Total liabilities and stockholders' equity $ 300,000 2,423,025 183,750 300,000 808,500 1,130,775 2,423,025 $ Financial Forecasting The Martin Corporation makes cellphone cases which it sells to merchandisers at $1,325 for a case of 100. Mr. Martin is the owner; he manages the inventory and the finances for the company. He estimates that his sales for the next six months to be: Month January February March April May June Projected Sales $ 828,125 $ 662,500 $ 927,500 $ 894,375 $ 629,375 $ 728,750 # of units 62,500 50,000 70,000 67,500 47,500 55,000 Last year Martin Corporation's sales were $569,750 in November and in December were $960,625 (72,500 cellphone cases). Mr. Martin has a meeting scheduled with his banker to arrange financing for the next quarter. He is relying on you, as his finance manager to prepare projections to present to the bank. He is expecting you to use his sales forecast and the information below to prepare a monthly cash budget, monthly and quarterly pro forma income statements and all necessary supporting schedules for the first quarter. Based on history, Martin Corporation expects to collect 60 percent of its accounts receivable 30 days after sales and balance of the accounts receivable the following month (two months after the sale). It pays for materials 30 days after receipt. Mr. Martin prefers to keep a two-month supply of inventory in stock in case of higher sales. Inventory at the beginning of December was 150,000 units, not the desired inventory level. The major cost of production is the purchase of raw materials in the form of plastic, which is cut, shaped and finished. Last year, raw materials had a cost of $525 per 100 cellphone cases but the material vendor has advised that the cost will increase, effective January 1, to $530 per 100 cellphone cases. The Martin Corporation uses FIFO inventory accounting. Labor is paid per unit and costs are $200 per 100 units and are expected to remain the same throughout the first quarter. Overhead is allocated at $79 per 100 units, and selling and administrative costs are 20 percent of sales. Labor expense and overhead are paid in the month occurred, while interest and taxes are paid quarterly. Martin Corporation usually maintains a minimum cash balance of $20,000, and it puts its excess cash in marketable securities. The average tax rate is 35%, the company usually pays out 40% of net income in dividends to stockholders. Marketable securities are sold before funds are borrowed when a cash shortage occurs. Do not account for interest on any short-term borrowings. Interest of $4,500 on the long-term debt is paid in March, but is allocated over each month for accounting purposes. Tax and dividends are paid in March. Martin Corporation Balance Sheet 12/31/20X1 Assets $ 30,000 1,188,525 904,500 $ 2,123,025 $ 1,100,000 800,000 Current Assets: Cash Accounts Receivable Marketable Securities Inventory Total current assets Fixed assets: Plant and equipment Less accumulated depreciation Net plant and equipment Total Assets Liabiliities and Stockholders' equity Current liabiliites Accounts Payable Notes Payable Long Term Debt Common Stock Retained earnings Total liabilities and stockholders' equity $ 300,000 2,423,025 183,750 300,000 808,500 1,130,775 2,423,025 $