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 forecast sales figures: Actual Forecast November December $640,000 January 660,000 February Additional Information $720,000 April forecast $560,000 760,000 570,000 March of the firm's sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 20 percent are paid in the month after sale and 80 percent are paid in the second month after the sale. Materials cost 40 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 30 percent of sales and is paid for in the month of sales. Selling and administrative expense is 20 percent of sales and is paid in the month of sales. Overhead expense is $33,000 in cash per month. Depreciation expense is $12,200 per month. Taxes of $10,200 will be paid in January, and dividends of $13,000 will be paid in March. Cash at the beginning of January is $124,000, and the minimum desired cash balance is $119,000. a. Prepare a schedule of monthly cash receipts for January, February, and March November Harry's Carryout Stores Cash Receipts Schedule December 640,000 $ 660,000 $ 320.000 February March 570,000 Sales $ 720,000 $ Credit sales 330,000 360,000 285,000 Cash sales 360,000 285,000 One month after sale Two months after sale 66,060 76,000 256,000 288.000 Total cash receipts $ 682,000 $ 649,000 b. Prepare a schedule of monthly cash payments for January, February, and March January 760,000 $ 380,000 380,000 72.000 264.000 716,000 $ 27 9 b. Prepare a schedule of monthly cash payments for January, February, and March. Harry's Carryout Stores Cash Payments Schedule January February March $ 288,000 $ 304,000 $ Payments for purchases 200,000 Labor expense 216,000 228,000 171,000 Selling and administrative 144,000 152,000 114,000 Overhead 33,000 33,000 33,000 10,200 Taxes 0 0 Dividends 0 0 13,000 Total cash payments $ 691,200 $ 717,000 $ 531,000 c. Prepare a monthly cash budget with borrowings and repayments for January, February, and March. (Negative amours indicated by a minus sign. Assume the January beginning loan balance is $0.) Harry's Carryout Stores Cash Budget January February March Total cash receipts Total cash payments Net cash flow Beginning cash balance Cumulative cash balance Monthly loan (or repayment) Ending cash balance Cumulative loan balance $ 682.000 $ (691.200) (9.200) 124,000 114,000 4,200 119,000 716,000 $ (717,000) (1,000) 119,000 118,000 1,000 119,000 649,000 (531,000) 118,000 119.000 237,000 118,000 355.000
