Financial Planning and Forecasting - Cool Aid Company (CAC)

CAC starts its' operation in October and the sales data for the month of October – December 2022 are as follows:

Oct RM 0

Nov 0

Dec 2,800,000

The company anticipates that sales will pick up again in January 2023 by 20% of the previous month’s sales and the trend continues until March, then it declines by 10% in the second quarter of 2023. The company’s cash sales are 20% of the month’s sales, and the credit sales collection is made in the following month (50%), two months after (30%), and the balance of 19% is 3 months after. The remaining sales are deemed to be uncollected.

1. Prepare projected cash inflows for the first quarter of 2023.

CAC produces its products two months in advance of anticipated sales and ships to warehouse centre the month before sale. The inventory safety stock is 2% of the anticipated month’s sale. Beginning inventory is 3% of units sold. Each unit costs RM2.00 to make. The average sales price per unit is RM5.00. The cost is made up of 30% labour, 65% materials, and 5% shipping (to the warehouse). The company pays for labour in the month of production, shipping the month after production, and raw materials the month prior to production.

The company’s other cash outflows from operation are as follows:

Salary	RM500,000 in 2022. To increase by 5% in 2023.
Utilities	5% of monthly production cost.
Other operational cost	5% of monthly sales.

2. Determine the cost of production and the anticipated cash outflows for the first quarter of 2023.

As part of the company’s cash management policy, a cash reserve of current month's cash sales of 2% must be always kept. MBB rates of financing on deficit is 4.38% p.a. and on deposit is 3.33% p.a.

3. Assess the company’s cashflow position in the first quarter of 2023.