Using the cash budget below, when do you expect the credit need to be the greatest of The Toy-R-Cash store? This is what my assignement says:

ToysRCash, Inc.

In January 2018, Mr. Lee Woods, President of ToysRCash, Inc. (TRC), was considering his companys

financing needs for the coming fiscal year. (Fiscal Year-End, December 31st). The companys production

schedules have been highly seasonal, reflecting a seasonal pattern of sales.

TRC is a regional manufacturer of plastic toys. Products produced through FYE 2017 are: Gobots, Dolls,

Glowworms, Little People, Wheel Whoppers, Cook sets, Plastic riding toys, and a variety of other

miscellaneous items. Exhibit 1 shows the companys product mix for the years 2013 2017.

The manufacture of plastic toys is a highly competitive business with many producers, most of which are not

strongly financed. Capital requirements are not large and technology is relatively simple, so that a number of

new firms enter the business each year. On the other hand, competition is severe with respect to both price

and design, resulting in a relatively high failure rate. There is a significant, temporary advantage in designing

a popular new toy. Margins tend to be high on such an item, until competitors are able to offer a similar

product. For example, the successful introduction by TRC of the Glowworm contributed significantly to

profits in 2016. In 2017, 7 competitors offered a similar item, and its wholesale price was nearly halved.

Although TRC still plans to manufacture their existing lines, a new product line known as Radar Gun is

being introduced. This toy is a version of Paint Ball where, when hit, the transmitted beam causes a safe

paint-like product to explode from plastic vests worn by participants. Radar Gun is more of a high

technology toy that transmits light beams for approximately 100 feet, one activated by a trigger mechanism.

In the research and development phase and subsequent test marketing of the product, buyers became very

excited about the marketability of this product. Due to this high success rate, TRC has purchase orders from

major retail stores representing $1,000,000 in sales for the 2018 season. The company expects that sales in

2018 will double over 2017 levels, with 60% of sales coming from the new product and the remaining 40%

to come from existing lines. Exhibit 2 shows the companys projected product mix for the year 2018, with

appropriate related sales.

Mr. Lee Woods founded TRC in 1999. Prior to founding TRC Mr. Woods had been employed for 15 years as

a production manager by a large national manufacturer of plastic toys. With his savings and those of his

former assistant, Mr. Andy Hall, Mr. Woods established the company. Originally a partnership, the firm

incorporated in 2001, with Mr. Woods taking 75% of the capital stock and Mr. Hall 25%. The latter serves as

production manager and Mr. Woods, as President, is responsible for overall direction of the companys

affairs. The company has experienced relatively rapid growth since its founding and has enjoyed profitable

operations each year since 2002. Sales in 2017 were $1,000,000 and by virtue of the new Radar Gun are

projected to double in 2018.

Net income reached $152,000 in 2017 after state and federal taxes of 50%. A new Tax Reform Act will

result in a blended effective tax rate of 40% for the fiscal year 2018. Exhibits 3 and 4 present the latest

financial statements of the company. For the year 2016 and 2017 the cost of goods sold averaged 60% of

sales and is expected to maintain approximately that proportion in 2018. With the introduction of the new

product, the company will need to acquire fixed assets costing $250,000. Plans are to acquire the assets in

February, and it will take until May to get the new systems up and operating. Operating expenses will more

than double for 2018. Projections indicate that due to raises to key officers and new operating expenses

associated with the new product, operating expense will amount to $240,000, spread evenly throughout

each month of the 2018 fiscal year.

Expanding operations has resulted in a somewhat strained working capital position for TRC. The year-end

cash position of $147,000 is only $47,000 greater than what is regarded as the minimum necessary for the

operation of the business. The company currently has a $100,000 unsecured line of credit with your bank,

3

UGA Bank & Trust. The high usage in 2017 was $60,000 and there was no outstanding debt at fiscal yearend

2017.

The companys sales are highly seasonal. Over 95% of annual dollar volume usually is sold during May-

September. Exhibit 5 shows sales by month for 2017 and Exhibit 5-A shows expected sales percentage

based on the introduction of the Radar Gun. Sales are made principally to regional variety store chains

and toy brokers on net 30-day terms. Large variety store chains are becoming increasingly important

customers of TRC, accounting for over 65% of sales for 2017. These customers are requesting longer

payments terms (net 90 days) and because of competitive pressures, TRC expects to grant such terms to

these customers starting May 1, 2018. TRC expects these large customers to continue to account for about

65% of 2018 sales.

The companys production processes are not extremely complex. Plastic molding powder is processed by

injecting molding presses formed into the shape desired. Automatic painting machines next paint the plastic

shapes. The final step in the process is assembly and packaging in cartons or plastic bags. The production

of the Radar Gun is somewhat more complex, but the basic molding process is the same. Inserted in the

interior of the toy is a tiny light transmitter and trigger device that when engaged, sends out a tiny light

beam. Wiring of these mechanisms to a battery pack in the handle of the gun completes the interior of the

toy. To avoid excess equipment costs, storage and high inventory levels, typically all production processing

is completed in the same day so there is virtually no work in process at the end of each day. Material

Purchases on net 30-day terms are made monthly for the estimated production in the current month. Total

purchases in 2018 are forecast at $600,000; labor and production cost are expected to be $600,000 in

2018, which Excludes $24,000 in depreciation.

TRCs practice is to produce in response to orders and, although there are large orders for the new product,

it will be May before the company will have its capacity expanded from its purchase of additional fixed

assets and renovations to handle the new production.

With the exception of existing purchase orders, the first sizeable orders for holiday sales by retailers are

usually received in early May. Shipments are made whenever possible on the day that an order is produced.

Hence, production and sales amounts in each month tend to be equivalent. A small inventory of

representative finished goods, averaging $31,000 in 2017, is maintained in a nearby public warehouse,

owing to lack of space in the plant. Inventory is expected to remain at these levels during the coming year.

The company has requested that UGA Bank & Trust loan TRC $220,000 for the purchase of additional fixed

assets (renovations and specialized equipment). This loan should provide monthly principal payments

including interest of $10,000. The equipment needs to be purchased and paid for next month (Feb. 2018) to

ensure installation is completed prior to the seasons orders. Term loan interest expense has been projected

through operating expenses and is included in the loan terms above. Mr. Woods does not have a close

handle on what his short term borrowing needs will be; thats where you come in. You have just been

assigned this account relationship at UGA Bank & Trust by the EVP of commercial lending. Based upon the

information available to you: (Your assignment for this case study is questions 1-7)

This is the Cash Budget I came up with and I am having problems answering this question that says:

#2 When do you expect the credit need to be the greatest?

2018 Cash Flow													Total
	January	Febuary	March	April	May	June	July	August	September	October	November	December
COH previous month	$ 147,000.00	$ 151,500.00	$ 105,250.00	$ 79,150.00	$ 74,449.00	$ 11,865.94	$ (25,572.10)	$ (58,106.43)	$ 82,407.18	$ 100,000.00	$ 100,000.00	$ 199,972.06
added LP				$ 20,850.00	$ 25,551.00	$ 88,134.06	$ 125,572.10	$ 158,106.43	$ 17,592.82
Beging COH	$ 147,000.00	$ 151,500.00	$ 105,250.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 199,972.06
Expected Sales	$ 10,000.00	$ 11,000.00	$ 13,000.00	$ 11,000.00	$ 250,000.00	$ 350,000.00	$ 450,000.00	$ 500,000.00	$ 365,000.00	$ 14,000.00	$ 13,000.00	$ 13,000.00	$ 2,000,000.00
Collections 30 & 90	$ 30,000.00	$ 6,500.00	$ 7,150.00	$ 8,450.00	$ 7,150.00	$ -	$ -	$ 162,500.00	$ 227,500.00	$ 292,500.00	$ 325,000.00	$ 237,250.00
Gross profit for month	$ 33,500.00	$ 10,350.00	$ 11,700.00	$ 12,300.00	$ 94,650.00	$ 122,500.00	$ 157,500.00	$ 337,500.00	$ 355,250.00	$ 297,400.00	$ 329,550.00	$ 241,800.00
COGS	$ 3,000.00	$ 3,300.00	$ 3,900.00	$ 3,300.00	$ 75,000.00	$ 105,000.00	$ 135,000.00	$ 150,000.00	$ 109,500.00	$ 4,200.00	$ 3,900.00	$ 3,900.00	$ 600,000.00
Labor	$ 3,000.00	$ 3,300.00	$ 3,900.00	$ 3,300.00	$ 75,000.00	$ 105,000.00	$ 135,000.00	$ 150,000.00	$ 109,500.00	$ 4,200.00	$ 3,900.00	$ 3,900.00	$ 600,000.00
Operating Expenses	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 20,000.00	$ 240,000.00
Fixed Asset Purchase		$ 30,000.00											$ 30,000.00
PP			$ 10,000.00	$ 10,000.00	$ 10,000.00	$ 10,000.00	$ 10,000.00	$ 10,000.00	$ 10,000.00	$ 10,000.00	$ 10,000.00	$ 10,000.00	$ 100,000.00
Interest on ST				$ 1,251.00	$ 2,784.06	$ 8,072.10	$ 15,606.43	$ 25,092.82	$ 26,148.38	$ 21,342.29	$ 7,082.82		$ 107,379.91
Pay Back on ST									$ 80,101.62	$ 237,657.71	$ 118,047.08
Total of Expenses	$ 26,000.00	$ 56,600.00	$ 37,800.00	$ 37,851.00	$ 182,784.06	$ 248,072.10	$ 315,606.43	$ 355,092.82	$ 355,250.00	$ 297,400.00	$ 162,929.90	$ 37,800.00
Before Taxes	$ 7,500.00	$ (46,250.00)	$ (26,100.00)	$ (25,551.00)	$ (88,134.06)	$ (125,572.10)	$ (158,106.43)	$ (17,592.82)	$ (0.00)	$ 0.00	$ 166,620.10	$ 204,000.00
Tax paid	$ 3,000.00								$ (0.00)	$ 0.00	$ 66,648.04	$ 81,600.00
Net Profit	$ 4,500.00	$ (46,250.00)	$ (26,100.00)	$ (25,551.00)	$ (88,134.06)	$ (125,572.10)	$ (158,106.43)	$ (17,592.82)	$ (0.00)	$ 0.00	$ 99,972.06	$ 122,400.00
Ending Cash	$ 151,500.00	$ 105,250.00	$ 79,150.00	$ 74,449.00	$ 11,865.94	$ (25,572.10)	$ (58,106.43)	$ 82,407.18	$ 100,000.00	$ 100,000.00	$ 199,972.06	$ 322,372.06
Minimum ending Cash	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00	$ 100,000.00
Over/Short	$ 51,500.00	$ 5,250.00	$ (20,850.00)	$ (25,551.00)	$ (88,134.06)	$ (125,572.10)	$ (158,106.43)	$ (17,592.82)	$ (0.00)	$ (0.00)	$ 99,972.06	$ 222,372.06
Cummulative ST			$ 20,850.00	$ 46,401.00	$ 134,535.06	$ 260,107.16	$ 418,213.59	$ 435,806.41
									$ 355,704.79	$ 118,047.08