MayCees Departmental Store: A Case Study

MayCees Departmental Stores Inc. is currently in troubled waters. Competition from online retailers has resulted in less frequent store visits from customers. A recent survey has revealed that customers on an average are also spending less time on the shopping floor. Accurate budgeting is therefore a key element of business success and survival for MayCees. You have just been hired as an intern at MayCees headquarters in Cleveland OH and your first assignment is to help the CFO Ms. Cathy Wilkins prepare a cash budget. At your first meeting with the CFO, you are provided with the following information.

Past Sales

Nov 2020: $650,000

Dec 2020: $870,000

Projected Sales for Six-Months ending June 2021 are as follows:

January February March April May June

$350,000 $400,000 $475,000 $650,000 $500,000 $675,000

Sales Receivables

Cash Sales: 25% of Net Sales; Payment for 45% of Net Sales are received the following month; Receivables for all other sales are collected after 60 days (i.e., two months).

Cost of Goods Sold

Cost of Goods Sold is currently estimated at 65% of Net Sales. MayCees pays 20% in cash upfront, 45% next month and for the remaining, it enjoys a Net 60 credit terms.

Wages and Salaries

Fixed Cost $81,000 and this is applicable for Winter months January and February only. For all other months, the variable wages and salaries (in addition to the fixed cost) are estimated at 25% of difference between the Net Sales for the month and the average sales for January and February.

Miscellaneous Fixed Overhead Expenses

Store Lease $34,336; Utilities and Water $2,600; Interest on Long-Term Corporate Bonds $11,000.

Taxes

$5,585 for January; $8,320 for June.

Dividends

Estimated quarterly dividends in the tune of $19,257 will be paid to shareholders in January and $32,335 in April.

Additional Information

1. Ending cash balance for December 2020 is $21,000

2. Short-Term Borrowings (i.e., for 30 days), for December 2020 is $52,000

3. MayCees borrows money (Short-Term Borrowings, i.e., for 30 days) by issuing Commercial Paper (CP) if the month-end cash balance falls below $14,275. All borrowed funds must be paid off after 30 day along with interest. Interest on MayCees CP is currently estimated at 7.25%.

4. MayCees invests cash in excess of $43,000 in 30 days Money Market Instruments. Principal along with interest is received after 30 days. Interest on Money Market Instruments are currently estimated at 5.25%.

The CFO wants you to

1. Prepare an estimate of monthly cash balances for the six months ending June 2021.

2. Do a What-if Analysis if projected sales go down by 10%

Assignment #2: PROJECTED 6-MONTH CASH BUDGET: MAYCEE'S DEPARTMENTAL STORE INC. 6-Month TOTAL Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Net Sales (Hostorical and Forecast Values Sales Receivables Summary Cash Sales 30-Day Credit Sales 60-Day Credit Sales Cash Inflow from Sales % 25% 45% 30% Cost of Goods Sold Summary 65% Cost of Goods Sold -% of Sales S Value Payment Summary Cash Payment 30-Day Credit Terms 60-Day Credit Terms Net Cash Outflow in lieu of C.O.G.S. 20% 45% 35% Operating Expenses Summary 25% Fixed Cost (Wages and Salaries) Variable Cost (Wages and Salaries) Total Wages and Salaries Store Lease Utilities and Water Interest on Long-Term Bonds Dividends Taxes Total Operating Expenses Cash Balances and Cash Flows Beginning Cash Balance Cash Inflows (Outflows) from Operations Cash Inflow from Sales Cash (Outflow) in lieu of C.O.G.S. Cash (Outflow) in lieu of Operating Expenses Net Cash Inflow (Outflow) from Operations Cash Inflow from Previous Month's Investing -Principal Refund -Interest Earned Cash (Outflow) from Previous Month's Borrowing -Retirement of CP Interest Paid on CP Cash Balance (Not Adjusted for New Borrowings/Investments) New Money Market Investments (Cash Outflow) New CP Borrowings (Cash Inflow) Ending Cash Balance Assignment #2: PROJECTED 6-MONTH CASH BUDGET: MAYCEE'S DEPARTMENTAL STORE INC. 6-Month TOTAL Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Net Sales (Hostorical and Forecast Values Sales Receivables Summary Cash Sales 30-Day Credit Sales 60-Day Credit Sales Cash Inflow from Sales % 25% 45% 30% Cost of Goods Sold Summary 65% Cost of Goods Sold -% of Sales S Value Payment Summary Cash Payment 30-Day Credit Terms 60-Day Credit Terms Net Cash Outflow in lieu of C.O.G.S. 20% 45% 35% Operating Expenses Summary 25% Fixed Cost (Wages and Salaries) Variable Cost (Wages and Salaries) Total Wages and Salaries Store Lease Utilities and Water Interest on Long-Term Bonds Dividends Taxes Total Operating Expenses Cash Balances and Cash Flows Beginning Cash Balance Cash Inflows (Outflows) from Operations Cash Inflow from Sales Cash (Outflow) in lieu of C.O.G.S. Cash (Outflow) in lieu of Operating Expenses Net Cash Inflow (Outflow) from Operations Cash Inflow from Previous Month's Investing -Principal Refund -Interest Earned Cash (Outflow) from Previous Month's Borrowing -Retirement of CP Interest Paid on CP Cash Balance (Not Adjusted for New Borrowings/Investments) New Money Market Investments (Cash Outflow) New CP Borrowings (Cash Inflow) Ending Cash Balance