5. 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 $260,000 January $400,000 April forecast $400,000
December 340,000 February 440,000 March 410,000
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 $31,000 in cash per month.
Depreciation expense is $10,600 per month. Taxes of $8,600 will be paid in
January, and dividends of $5,000 will be paid in March. Cash at the
beginning of January is $92,000, and the minimum desired cash balance is
$87,000.
For January, February, and March, prepare a schedule of monthly cash
receipts and monthly cash payments.