Harry’s Carryout stores have eight stores. The firm wishes to expand by two more stores and need a bank loan to help finance this. Mr. Wilson, the bank requested that the CFO of Harry’s Carryout to submit a three-month cash forecast for April through June.
The following are the actual and forecasted sales figures:
Harry’s Carryout Sales Forecast:
February $200,000
March 220,000
April 280,000
May 320,000
June 340,000
July 330,000
• Of the firm’s sales, 40% are cash and the remaining 60% are on credit. Of the credit sales, 30% are paid in the month after the sale and 70% are paid in the second month after the sale.
• Materials cost 30% of sales. The material is paid for in the month in which the sale is made.
• Labor expense is 40% of sales and is paid in the month of the sale.
• Selling and administrative expenses are 5% of sales and are also paid in the month of the sale.
• Other overhead expense is $28,000 in cash per month.
• Depreciation is $10,000 per month.
• Taxes of $8,000 will be paid in April, and dividends of $2,000 will be paid in June.
• Cash at the beginning of April is $80,000, and the desired minimum cash balance is $75,000.
• Any excess cash available at the end of the month is used to repay any borrowing.
• For this exercise ignore interest.
For April, May and June, prepare a cash forecast that includes the monthly cash receipts, monthly cash payments, and monthly cash borrowing and loan repayment.