Inventory purchases are forecast to be $608,500 a month beginning in January. In November they were $623,000, and in December they were $618,000. The purchases are paid in 40 days

Assume you are the Financial Analyst for Heliom Inc., and it is January 1, 2023.

Heliom Inc., a manufacturing company, has been growing quickly, but it has found that its financial situation is continually under pressure. Production has fluctuated to meet demand to provide first-class service, resulting in larger inventory positions. Also, the collection of accounts has worsened to approximately 60 days, which is well above the invoice terms of net 30 days. To address the financial concerns, Volthium Inc. is forecasting level production and an expected impact of plans by the credit department to bring the average collection period down to 35 days.

Forecasted sales for the upcoming months are as follows:

January $1,818,909
February 1,923,444
March 2,048,886
April 2,195,235
May 2,299,770
June 2,383,398

Sales for November were $1,609,839 and will be approximately $1,714,374 for the just completed month of December. It is projected that the current collection period of 60 days will be reduced to 50 days for January and February sales and to 42 days for March and April sales, and will meet the target of 35 days for sales in May and June.

Inventory purchases are forecast to be $608,500 a month beginning in January. In November they were $623,000, and in December they were $618,000. The purchases are paid in 40 days. Manufacturing labour expense will be paid as incurred and will be $192,900 a month. Other expenses of manufacturing will also be paid as incurred and are expected to be $348,000 a month. Cost of goods sold has regularly been 68% of sales.

Amortization is $38,000 per month. Selling and administrative expenses are expected to be 8 percent of sales. The tax rate is 45 percent.

There will be payments on Notes Payable of $490,000 in each of February and May. Income taxes of $320,000 are due and paid in April. Dividends of $18,400 and interest of $234,000 (3 months of interest) are paid in January and April.

Heliom INC.
Balance Sheet (Estimated)
December 31, 2022
($ thousands)

ASSETS
Current Assets:
Cash $639
Accounts Receivable 4,100
Inventory 8,100
Total Current Assets $12,839
Capital Assets:
Plant and Equipment $11,273
Less: Accumulated Amortization 4,784 6,489
Total Assets $19,328

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts Payable $918
Notes Payable 4,222
Accrued Liabilities 2,596
Total Current Liabilities $7,736
Long-term Debt 4,648
Common Stock 4,577
Retained Earnings 2,367
Total Liabilities and Shareholders’ Equity $19,328

Required:
Using the information above, construct a MONTHLY pro forma Income Statement and cash budget for the six-month period (January to June 2023). Identify if there will be any need for short-term financing. Also, comment on the policy changes and potential consequences if the collection period had remained at 60 days. Assume capital assets are sufficient for increased sales.