Harry’s Carryout Stores has eight locations. The firm wishes to expand by two mo

Question

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 forecasted sales figures:

  

Of the firm’s sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 50 percent are paid in the month after sale and 50 percent are paid in the second month after the sale. Materials cost 30 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 40 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 $38,000 in cash per month.

     Depreciation expense is $12,000 per month. Taxes of $10,000 will be paid in January, and dividends of $12,000 will be paid in March. Cash at the beginning of January is $120,000, and the minimum desired cash balance is $115,000.

Harry’s Carryout Stores
Cash Receipts Schedule

Prepare a schedule of monthly cash payments for January, February, and March.

     

Harry’s Carryout Stores
Cash Payments Schedule

    

Prepare a monthly cash budget with borrowings and repayments for January, February, and March.(Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.)

     

Harry’s Carryout Stores

Actual Forecast Additional Information   November $ 400,000 January $ 680,000 April forecast $ 540,000   December 620,000 February 720,000 March 550,000

Of the firm’s sales, 50 percent are for cash and the remaining 50 percent are on credit. Of credit sales, 50 percent are paid in the month after sale and 50 percent are paid in the second month after the sale. Materials cost 30 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 40 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 $38,000 in cash per month.

    

     Depreciation expense is $12,000 per month. Taxes of $10,000 will be paid in January, and dividends of $12,000 will be paid in March. Cash at the beginning of January is $120,000, and the minimum desired cash balance is $115,000.

  a. Prepare a schedule of monthly cash receipts for January, February, and March.

Harry’s Carryout Stores
Cash Receipts Schedule

November December January February March   Sales $    $    $    $    $      Credit sales                  Collections:      Cash sales $    $    $         One month after sale               Two months after sale            Total cash receipts $    $    $    b.

Prepare a schedule of monthly cash payments for January, February, and March.

     

Harry’s Carryout Stores
Cash Payments Schedule

January February March   Payments for purchases $    $    $      Labor expense            Selling and administrative            Overhead            Taxes            Dividends            Total cash payments $    $    $   

    

c.

Prepare a monthly cash budget with borrowings and repayments for January, February, and March.(Leave no cells blank - be certain to enter "0" wherever required. Negative amounts should be indicated by a minus sign. Assume the January beginning loan balance is $0.)

     

Harry’s Carryout Stores

Cash Budget December January February March   Total cash receipts $    $    $      Total cash payments            Net cash flow $    $    $      Beginning cash balance            Cumulative cash balance $    $    $      Monthly loan (repayment)            Ending cash balance $    $    $      Cumulative loan balance $    $    $    $   

Explanation / Answer

Harry’s Carryout Stores Cash Receipts Schedule November December January February March   Sales 400000 620000 680000 720000 550000   Credit sales       340000 360000 275000   Collections:      Cash sales 340000 360000 275000      One month after sale 155000 170000 180000      Two months after sale 100000 155000 170000   Total cash receipts 595000 685000 625000 Harry’s Carryout Stores Cash Payments Schedule January February March   Payments for purchases 204000 216000 165000   Labor expense 272000 288000 288000   Selling and administrative 51000 108000 82500   Overhead 38000 38000 38000   Taxes 10000         Dividends       12000   Total cash payments 575000 650000 585500 December January February March   Total cash receipts 595000 685000 625000   Total cash payments 575000 650000 585500   Net cash flow 20000 35000 39500   Beginning cash balance 120000 140000 175000   Cumulative cash balance $    $    $      Monthly loan (repayment)            Ending cash balance 140000 175000 214500   Cumulative loan balance $    0 0 0

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