Rainbow Sales Company (RSC), a nationwide distributor of Jerry Garcia silk ties, has just hired you as a management trainee. The company has an exclusive franchise on distribution of these ties, and sales have grown rapidly over the last few years so that it has become necessary to add new members to the management team. You have been given responsibility for financial planning. Your first assignment is to build a plan for the next three months, starting April 1. You are anxious to make a favorable impression on the president of RSC. Rainbow desires a minimum ending cash balance and can borrow money through a revolving line-of-credit from the Bank of Clarion. Any borrowing, along with repayments of principal can be in any amount. RSC wishes to use excess cash to pay off the loan principal as rapidly as possible. Interest expense must be shown on the income statement as a deduction from operating income. To simplify, assume no tax consequences for RSC.

Rainbow Sales Company
Assumptions
Sales in units					Percentage Change =		0%
		ACTUAL					FORECAST
Month	January	February	March		April	May	June	July	August	September
Units	20,000	24,000	28,000		35,000	45,000	58,000	42,000	39,000	3,400
Other Assumptions							Operating expenses
								Variable:	(per unit)
	Selling price per unit				$18.00			Sales commissions		$ 1.00
	Unit cost				$10.00			Shipping & handling		$ 2.00
								Fixed:	(per month)
	Ending cash balance (per month)				$10,000			Wages and salaries		$36,500
	Ending inventory as percentage							Rent		8,000
		of next month's sales			90%			Utilities		2,400
	Percentage of purchases paid in:							Insurance expired		1,000
		Current month			60%			Depreciation		2,500
		Following month			40%			Other S&A		3,700
	Percentage of sales collected in:							Advertising Campaign		-
		Current month			30%
		Following month			50%
		Second following month			20%
	New fixed assets purchased in May				$35,000
	Quarterly dividends				$15,000
	Line-of-credit annual interest				10%
Balance Sheet as of March 31			(Actual)
Assets
	Cash				$14,000	April Collections		May Collection
	Accounts Receivable				219,600	43,200	126,000	50,400	219600
	Inventory				252,000
	Unexpired insurance				14,400
	Fixed assets, net of depreciation				172,700
	Total Assets				$672,700
Liabilities and Stockholder's Equity
	Accounts payable, purchases				$85,750
	Dividends payable				12,000
	Capital stock, no par				300,000
	Retained earnings				274,950
	Total liabilities and stockholder's equity				$672,700

Rainbow Sales Company
Budgets and Schedules
Schedule a: Sales budget								Check Figures
				April	May	June	Total
Credit sales, 100%				$630,000	$810,000	$1,044,000	$2,484,000	$ 2,484,000
Schedule b: Cash collections
				April	May	June	Total
Collections from current month					$0	$0	$0
Collections from prior month					-	-	-
Collections from second prior month				-	-	-	-
	Total collections			$0	$0	$0	$0	$ 1,810,800
Schedule c: Purchases budget in units
				April	May	June	Total
Desired ending inventory				0	0	0	0
Plus goods sold				-	-	-	-
Total needed				-	-	-	-
Less beginning inventory				-	-	-	-
	Total purchases			0	0	0	0	144,300
Schedule d: Purchases budget (dollars)
				April	May	June	Total
Desired ending inventory				$0	$0	$0	$0
Plus cost of goods sold				-	-	-	-
Total needed				-	-	-	$0
Less beginning inventory				-	-	-	-
	Total purchases			$0	$0	$0	$0	$ 1,506,000
Schedule e: Cash pmts for purchases
				April	May	June	Total
From accounts payable (3/31)				$0	$0	$0	$0
April				-	-	-	-
May				-	-	-	-
June				-	-	-	-
	Total payments			$0	$0	$0	$0	$ 1,417,350