INFORMATION FOR HENRON, INC. BUDGET PROJECT 1. Heron, Inc. is a company that re-sells one product, a particularly comfortable lawn chair. An overseas contractor makes the product exclusively for Heron, so Heron has no manufacturing-related costs. 2. As of Nov 16, each lawn chair costs Heron $4 per unit. Henron sells each chair for $10 per unit. 3. The estimated sales (in units) are as follows: Nov 16 11,250 Dec 16 11,600 Jan 17 10,000 Feb 17 11,400 Mar 17 12,000 Apr 17 15,600 May 17 18,000 June 17 22,000 July 17 18,000 4. Per an existing contract, the cost of each chair is scheduled to increase by 5% on March 1, 2017. In addition, because of increasing costs of plastic webbing, the cost is anticipated to increase by an additional 5% on May 1, 2017. To offset these increases, the company plans to raise the sales price to $11.25 per unit beginning May 1, 2017. The sales forecast (i.e., estimated sales in units) takes this price increase into account. 5. Thirty percent of any months sales are for cash, and the remaining 70% are on credit. Thirty percent of the credit sales are collected in the month of sale, 50% are collected in the following month, and 16% are collected in the second month after the sale. The remaining receivables are deemed uncollectible. Bad debts are written off in the month the debt is deemed uncollectible (e.g. if the sale is made in January and is not collected by the end of March, it is written off in March.) No accrual for estimated bad debts is made in the month of sale. 6. The firms policy regarding inventory is to stock (i.e. have in ending inventory) 40% of the forecasted demand in units (i.e., estimated sales) for the next month. Heron uses the first-in, first-out (FIFO) method in accounting for inventories. 7. Forty percent of the inventory purchases are paid for in the month of purchase and the remaining 60% are paid in the following month (i.e. all of the previous months Accounts Payable are paid off by the end of any month.) 8. Per a prior contract, a cash payment of $50,000 for equipment previously purchased is due in January. Another payment of $30,000 is due in February. Depreciation on the equipment previously purchased is included in the overhead cost detailed in item 11 below. Also, dividends of $12,000 are to be paid in March. 9. Monthly operating expenses consist of the following (if these are cash expenses, they are paid when incurred): Salaries and Wages $3,000 Sales Commissions 7% of sales revenue Rent $8,000 Other Variable Cash Expenses 6% of sales revenue Supplies Expense: See note $2,000 Other: See note $48,000 Note: Other general and administrative overhead is expected to be $48,000 per month. Of this amount, $24,000 represents depreciation and other non-cash expenses. The company maintains on hand one months worth of supplies. 10. The company must maintain a minimum cash balance of $15,000. Borrowing can make up shortfalls. For simplicity, assume that the bank will only lend (and accept repayments) in $1,000 increments. Ignore interest on the loan in your calculations, but minimize the amount borrowed and pay off any loans as soon as possible. 11. Cash on hand as of December 31, 2016 is expected to be $15,000. In addition, there will be no notes payable as of this date. 12. See below the other Balance Sheet accounts with their expected balances as of December 31, 2016: Supplies..............................................$ 2,000 Property, Plant and Equipment...........1,050,000 Accumulated Depreciation................. 526,475 Common Stock................................... 200,000 Retained Earnings.............................. 322,811 CHECK FIGURES Cash Receipts Budget Total Cash Receipts, January: $ 104,200 Total Cash Receipts, Jan June: $ 842,847 Uncollectible, January: $ 3,150 Uncollectible, Jan June: $ 20,118 Purchase Budget Total Purchases, Jan June: $ 391,200 Cash Budget Total Cash Disbursements, Jan June: $ 799,726 Ending Cash Balance, June: $ 58,121 Budgeted Income Statement Operating Expenses, Total: $ 508,318 Net Income, Total: $ 56,234 Budgeted Balance Sheet Total Assets: $ 621,023 Name: Hunter Rea ONLY Pink Cells should contain a keyed-in number Yellow cells will only contain formula Heron, Inc. Sales Budget For the 6 mos ending June '17 Nov '16 Dec '16 Jan '17 Feb '17 Mar '17 Apr '17 May '17 June '17 6 mos total Budged unit sales 11,250 11,600 10,000 11,400 12,000 15,600 18,000 22,000 89,000 Selling price per unit $10.00 $10.00 $10.00 $10.00 $10.00 $10.00 $11.25 $11.25 Total Sales $112,500 $116,000 $100,000 $114,000 $120,000 $156,000 $202,500 $247,500 $940,000 Cash Sales % 30% Credit Sales % 70% Cash Sales $33,750 $34,800 $30,000 $34,200 $36,000 $46,800 $60,750 $74,250 $282,000 Credit Sales 78,750 81,200 70,000 79,800 84,000 109,200 141,750 173,250 658,000 Total Sales $112,500 $116,000 $100,000 $114,000 $120,000 $156,000 $202,500 $247,500 $940,000 Current month A/R Collections 30% 1 month prior A/R Collections 50% 2 months prior A/R Collections 16% Uncollectible 4% Heron, Inc. Cash Collections For the 6 mos ending June '17 Jan '17 Feb '17 Mar '17 Apr '17 May '17 June '17 6 mos total Current month cash Sales 30,000 34,200 36,000 46,800 60,750 74,250 282,000 Current month A/R Collections 21,000 23,940 25,200 32,760 42,525 51,975 $197,400 1 month prior A/R Collections 2 months prior A/R Collections Total cash collections Bad Debt Expense Desired ending inventory % 40% Heron, Inc. Purchase Budget For the 6 mos ending June '17 Nov '16 Dec '16 Jan '17 Feb '17 Mar '17 Apr '17 May '17 June '17 6 mos total Budged unit sales Add desired ending inventory Total needs Less Beginning Inventory Required Purchases Cost per unit Purchases % Paid in Month of Purchase % Paid in Month after Purchase Heron, Inc. Schedule of Budgeted Cash Disbursements for Merchandise Purchases For the 6 mos ending June '17 Jan '17 Feb '17 Mar '17 Apr '17 May '17 June '17 6 mos total Cash purchases 1 month prior A/P Collections Cash disbursements for merchandise purch. Fixed Operating expenses: Variable Operating Expenses: Salaries and Wages Sales Commissions, % of Revenue Rent Other Variable Cash Expenses, % of Revenue Supplies Expense Other - Overhead Other - Depreciation Heron, Inc. Operating Expense Budget For the 6 mos ending June '17 Jan '17 Feb '17 Mar '17 Apr '17 May '17 June '17 6 mos total Salaries and Wages Sales Commissions Rent Other Variable Cash Expenses Supplies Expense Other - Overhead Other - Depreciation Bad Debt Expense Total operating expenses Depreciation and noncash items Bad Debt Expense Cash disbursements for operating expenses Equipment payment - January Equipment payment - February Dividends - March Minimum Monthly Cash Budget Heron, Inc. Cash Budget For the 6 mos ending June '17 Jan '17 Feb '17 Mar '17 Apr '17 May '17 June '17 6 mth Chg Cash balance, beginning Jan 1st Add collections from customers Total cash available Less disbursements: Cash disbursements for merchandise purch. Cash disbursements for operating expenses Equipment purchases Dividends Total cash disbursements Excess of receipts over disbursements Financing: Borrowing-note Repayments-note Total financing Cash balance, ending Heron, Inc. Budgeted Income Statement For the 6 mos ending June '17 Jan '17 Feb '17 Mar '17 Apr '17 May '17 June '17 Total Sales, net Cost of goods sold: Gross margin Total operating expenses Net Income Heron, Inc. Budgeted Balance Sheet FIFO Calculation 6/30/2017 Beg Inventory Beg Inventory - Units Purchases Purchases - Units COGS COGS - Units Ending Inventory Ending Inventory - Units Assets Current Assets: Jan Cash Feb Accounts receivable Mar Supplies Apr Merchandise Inventory May Plant and Equipment: Jun Buildings and Equipment Accumulated Depreciation Total assets Liabilities and Equity Accounts payable Capital stock Retained earnings Total liabilities and equity