Chapter 4, Problem 25P

Harry’s Carryout Stores has eight locations. The firm wishes to expand by two more stores and needs a bank loan to do this. Mr. Wilson, the banker, will finance construction if the firm can present an acceptable three-month financial plan for January through March. The following are actual and forecast sales figures:

Of the firm’s sales, 60 percent are for cash and the remaining 40 percent are on credit. Of credit sales, 20 percent are paid in the month after sale and 80 percent are paid in the second month after the sale. Materials cost 20 percent of sales and are purchased and received each month in an amount sufficient to cover the following month’s expected sales. Materials are paid for in the month after they are received. Labor expense is 50 percent of sales and is paid for in the month of sales. Selling and administrative expense is 15 percent of sales and is also paid in the month of sales. Overhead expense is $\text{\$31,000}$ in cash per month.

Depreciation expense is $\text{\$10,600}$ per month. Taxes of $\text{\$8,600}$ will be paid in January, and dividends of $\text{\$5,000}$ will be paid in March. Cash at the beginning of January is $\text{\$92,000}$ , and the minimum desired cash balance is $\text{\$87,000}\text{.}$

For January, February, and March, prepare a schedule of monthly cash receipts, monthly cash payments, and a complete monthly cash budget with borrowings and repayments.