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:
Actual Forecast Additional Information
November… $200,000 January….. $280,000 April forecast…. $330,000
December….. 220,000 February….. 320,000
Of the firm’s sales, 40 percent are for cash and the remaining 60 percent are on credit. Of credit sales, 30 percent are paid in the month after sale and 70 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 in the month of sales. Selling and administrative expense is 5 percent of sales and is also paid in the month of sale. Overhead expense is $28,000 in cash per month. Depreciation expense is $10,000 per month. Taxes of $8,000 will be paid in January, and dividends of $2,000 will be paid in March. Cash at the beginning of January is $80,000 and the minimum desired cash balance is $75,000.
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.