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Mervis Inc. July August Sept 3rd Quarter POINTS Sales Budget Sales - units 3,623,590 3,623,584 18,117,920 25,365,094 Price/unit $ 52.50 $ 52.50 $ 52.50 $ 52.50 Total Sales $ 190,238,475 $190,238,160 ### $ 1,331,667,435 4 Collections and A/R July August Sept 3rd Quarter Beg Balance $ 25,000 $ - $ - $ 25,000 July Sales $ 142,678,856 $ 28,535,771 $ 19,023,848 $ 190,238,475 August Sales $ - $142,678,620 $ 28,535,724 $ 171,214,344 September Sales $ - $ - ### $ 713,393,100 Total $ 142,703,856 $171,214,391 ### $ 1,074,870,919 4 Production Budget July August Sept 3rd Quarter October November Sales needs 3,623,590 3,623,584 18,117,920 25,365,094 21,741,504 ### End Inv 905,896 4,529,480 5,435,376 10,870,752 10,870,752 Total Needs 4,529,486 8,153,064 23,553,296 36,235,846 32,612,256 Begin Inv (2,200) (905,896) (4,529,480) (5,437,576) (5,435,376) Production Needs 4,527,286 7,247,168 19,023,816 30,798,270 27,176,880 4 Direct Materials Purchases Budget July August Sept 3rd Quarter October Production Needs 4,527,286 7,247,168 19,023,816 30,798,270 27,176,880 Pounds per Unit 3.00 3.00 3.00 3.00 3.00 Direct Material Needs for Producton 13,581,858 21,741,504 57,071,448 92,394,810 81,530,640 Ending Inventory 3,913,471 10,272,861 14,675,515 28,861,847 Total Direct Material Needs 17,495,329 32,014,365 71,746,963 121,256,657 Begin Inv (3,250) (3,913,471) (10,272,861) (14,189,581) Direct Material Purchases - Pounds 17,492,079 28,100,894 61,474,103 107,067,075 Cost per pound $ 8.75 $ 8.75 $ 8.75 $ 8.75 Direct Material Purchases - Cost $ 153,055,689 $245,882,822 ### $ 936,836,908 4

Cash Disbursements - DM July August Sept 3rd Quarter $ 275,000 $153,055,689 ### $ 399,213,511 4 Direct Labor Budget July August Sept 3rd Quarter Production Units 4,527,286 7,247,168 19,023,816 30,798,270 Direct Labor per Unit 2 2 2 2 Labor Hours Required 9,054,572 14,494,336 38,047,632 61,596,540 DL Rate per hour $6 $6 $6 $6 Direct Labor Cost $ 54,327,432 $ 86,966,016 ### $ 369,579,240 4 Overhead Costs July August Sept 3rd Quarter Production Units 4,527,286 7,247,168 19,023,816 30,798,270 Variable Costs $ 12,450,037 $ 19,929,712 $ 52,315,494 $ 84,695,243 Fixed Costs $ 5,300 $ 5,300 $ 5,300 $ 15,900 Total Manufacturing Overhead $ 12,455,337 $ 19,935,012 $ 52,320,794 $ 84,711,143 Less: Noncash items $ (600) $ (600) $ (600) $ (1,800) Cash Disbursements $ 12,454,737 $ 19,934,412 $ 52,320,194 $ 84,709,343 4 Ending Finished Goods Inventory Production Costs per Unit: Quantity Cost Total Direct Materials 3.00 $ 8.75 $ 26.25 Direct Labor 2.00 $6 $ 12.00 Overhead 1 $ 2.75 $ 2.75 Budgeted Cost per Unit $ 41.00 6 Selling and Administrative July August Sept 3rd Quarter Variable Costs $ 17,936,771 $ 17,936,741 $ 89,683,704 $ 125,557,215 Fixed Costs $ 2,295 $ 2,295 $ 2,295 $ 6,885 Selling and Administrative Costs $ 17,939,066 $ 17,939,036 $ 89,685,999 $ 125,564,100 4 Cash July August Sept 3rd Quarter Beginning Balance $ 35,000 $ 114,622 $ 115,861 $ 35,000 Cash Receipts $ 142,703,856 $171,214,391 ### $ 1,074,870,919 Total Cash Available $ 142,738,856 $171,329,014 ### $ 1,074,905,919 4 Cash Disbursements Direct Materials $ (275,000) ### ### $ (399,213,511) Direct Labor $ (54,327,432) $(86,966,016) ### $ (369,579,240) Manufacturing Overhead $ (12,454,737) $(19,934,412) $(52,320,194) $ (84,709,343) Selling & Administrative Expense $ (17,939,066) $(17,939,036) $(89,685,999) $ (125,564,100) Total Disbursements $ (84,996,234) ### ### $ (979,066,193) 6 Net Cash Inflow $ 57,742,622 ### ### $ 95,839,726 Amount Borrowed $ (57,628,000) $106,682,000 $ - $ 49,054,000 Amount Repaid $ - $ - $(49,054,000) $ (49,054,000) Interest (only if borrowings are repaid) $ - $ - $ 192,915 $ 192,915 6 $ (57,628,000) $106,682,000 $(48,861,085) $ 192,915 Cash Balance $ 114,622 $ 115,861 $ 96,032,641 $ 96,032,641 2

Quarterly Income Statement Sales ### Cost of Goods Sold ### Gross Margin $ 291,685,486 Selling and Admin Expenses ### Operating Income $ 166,121,386 Interest Expense $ 192,915 Net Income $ 166,314,301 12 Balance Sheet (as of Sept 30th) Assets: Cash $ 96,032,641 Accounts Receivable $ 256,821,516 Raw Materials Inventory $ 128,410,758 Finished Goods Inventory $ 222,853,222 Total Assets $ 704,118,137 8 Liabilities and Stockholder's Equity Accounts Payable $ 537,898,397 Common Stock $ 2,500 Retained Earnings $ 166,217,880 Total Liabilities and Stockholder's Equity $ 704,118,777 6 Sensitivity Analysis Questions (treat each question independently): Answer How much will need to be borrowed in July and August if the price per unit is $50? July $ 122,000 1 August $ 81,000 1 What is net income if the Variable S&A cost is only $4.00 per unit? Net income: $ 370,892 3 Note: Remember to change your spreadsheet back to the original information about price and Variable S&A cost before submitting it. Excel formatting 13

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Mervis Inc. Budgeted sales Month Units Budgeted overhead June 1,811,795 Variable overhead per unit $ 2.75 July 3,623,590 Fixed overhead per month $ 5,300 August 3,623,584 Depreciation portion of FOH $ 600 September 18,117,920 All OH is paid for in the same month October 21,741,504 November 43,483,008 Budgeted cash flow Selling price per unit $ 52.50 End of June Cash Balance $ 35,000 $ 25,000 Minimum cash balance $ 115,000 Monthly interest on borrowing 2.25% Cash collection pattern Ending cash balance must be at least $115,000 Month of sale 75% Borrowing must be in even increments of $1000 Month following sale 15% Repayments made when cash is available; 2 Months following sale 10% The entire principal and interest must be repaid at the same time Repayments are done on a FIFO basis Budgeted production Required ending inventory in terms of next month's sales 25% Beginning Retained Earnings $ (96,421) Beg. inv. of finished goods 2,200 Common Stock $ 2,500 Budgeted direct materials Beg. raw materials in lbs. 3,250 Lbs. needed per unit 3.0 End. inventory of raw materials in terms of next month's demand 18% Cost of materials per lb. $ 8.75 Balance of accts. Payable on 6/30 $ 275,000 Materials are paid for in the following month Budgeted direct labor Hours required per unit 2 Direct labor cost per hour $6 Wages are always paid in the same month Total sales for the quarter $ 2,782,500 Production needs - August 18,750 Budgeted selling and administrative costs Total Manuf. Overhead - Sept $ 58,925 Variable S&A per unit sold $ 4.95 Cash receipts - July $ 576,250 Fixed S&A per month $ 2,295 All S&A is paid for in the same month Beg. balance of accts. rec.- assume all collected in July Check Figures (to assist with budget completion) Hint: You shouldn't have to borrow cash in all 3 months Use the information on this page to fill in the budget on the next page. All budget numbers must be referenced from this page and cannot be manually typed in. Assume that any borrowing is done on the 1st of the month for the month in which the cash is needed. For example, if you calculate that cash will be borrowed for August, assume that it is borrowed on August 1st. Also, assume that any repayments are made on the last day of the month in which the repayment occurs.

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