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Chapter 04: Financial Forecasting
4-21. Solution:
Denver Corporation
Cash Payments Schedule
Dec. Jan. Feb. March April May June July
Sales $15,000 $17,00
0
$19,000 $25,000 $15,00
0
$21,000 $23,000
Purchases (40% of
next month’s sales)
6,000 6,800 7,600 10,000 6,000 8,400 9,200
22. Schedule of cash payments (LO2) Wright Lighting Fixtures forecasts its sales in units for the next four months as follows:
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 04: Financial Forecasting
March 4,000
April 10,000
May 8,000
June 6,000
Wright maintains an ending inventory for each month in the amount of one and one-half times the expected sales in the following
month. The ending inventory for February (March’s beginning inventory) reflects this policy. Materials cost $7 per unit and are
paid for in the month after production. Labor cost is $3 per unit and is paid for in the month incurred. Fixed overhead is $10,000
per month. Dividends of $14,000 are to be paid in May. Eight thousand units were produced in February.
Complete a production schedule and a summary of cash payments for March, April, and May. Remember that production in
any one month is equal to sales plus desired ending inventory minus beginning inventory.
4-22. Solution:
Wright Lighting Fixtures
Production Schedule
March April May June
Cash Payments
Feb March April May
Labor ($3/unit) month
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Chapter 04: Financial Forecasting
23. Schedule of cash payments (LO2) The Volt Battery Company has forecast its sales in units as follows:
January………........ 1,300 May……… 1,850
February………...... 1,150 June……… 2,000
March……….......... 1,100 July……… 1,700
April………............ 1,600
Volt Battery always keeps an ending inventory equal to 110 percent of the next month’s expected sales. The ending inventory for
December (January’s beginning inventory) is 1,460 units, which is consistent with this policy.
Materials cost $14 per unit and are paid for in the month after purchase. Labor cost is $7 per unit and is paid in the month the
cost is incurred. Overhead costs are $8,500 per month. Interest of $8,500 is scheduled to be paid in March, and employee
bonuses of $13,700 will be paid in June.
Prepare a monthly production schedule and a monthly summary of cash payments for January through June. Volt produced
1,100 units in December.
4-23. Solution:
Volt Battery Company
Production Schedule
Jan. Feb. March April May June July
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Chapter 04: Financial Forecasting
be
produced
Summary of Cash Payments
Dec. Jan. Feb. March April May June
($5/unit)
month
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 04: Financial Forecasting
incurred
payments
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 04: Financial Forecasting
24. Cash Budget (LO2) Graham Potato Company has projected sales of $6,000 in September,
$10,000 in October, $16,000 in November, and $12,000 in December. Of the company’s
sales, 20 percent are paid for by cash and 80 percent are sold on credit. Experience shows
that 40 percent of accounts receivable are paid in the month after the sale, while the
remaining 60 percent are paid two months after. Determine collections for November and
December.
Also assume Graham’s cash payments for November and December are $13,000 and
$6,000, respectively. The beginning cash balance in November is $5,000, which is the
desired minimum balance.
Prepare a cash budget with borrowing needed or repayments for November and
December. (You will need to prepare a cash receipts schedule first.)
4-24. Solution:
Graham Potato Company
Cash Receipts Schedule
September October November December
Graham Potato Company (Continued)
Cash Budget
November December
Cash receipts $ 9,280 $12,320
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent
of McGraw-Hill Education.
Chapter 04: Financial Forecasting
25. Complete cash budget (LO2) 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, monthly
cash payments, and a complete monthly cash budget with borrowings and repayments.
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of McGraw-Hill Education.
Chapter 04: Financial Forecasting
4-25. Solution:
Harry’s Carry-Out Stores
Cash Receipts Schedule
November December January February March April
receipts
4-25. (Continued)
Harry’s Carry-Out Stores
Cash Payments Schedule
January February March
sales paid in month after purchases—equivalent
to 20% of current sales).......................................
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Chapter 04: Financial Forecasting
*The $10,600 of depreciation is excluded because it is not a cash expense.
4-25. (Continued)
Harry’s Carry-Out Stores
Cash Budget
January February March
Total cash receipts............................... $350,400 $404,800 $409,200
Total cash payments............................ 379,600 405,000 384,500
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 04: Financial Forecasting
26. Complete cash budget (LO2) Archer Electronics Company’s actual sales and purchases
for April and May are shown here, along with forecast sales and purchases for June through
September.
Sales Purchases
April (actual).................................... $370,000 $155,000
May (actual)...................................... 350,000 145,000
June (forecast)................................... 325,000 145,000
July (forecast)................................... 325,000 205,000
August (forecast).............................. 340,000 225,000
September (forecast)......................... 380,000 220,000
The company makes 20 percent of its sales for cash and 80 percent on credit. Of the
credit sales, 50 percent are collected in the month after the sale, and 50 percent are
collected two months later. Archer pays for 20 percent of its purchases in the month after
purchase and 80 percent two months after.
Labor expense equals 15 percent of the current month’s sales. Overhead expense equals
$12,500 per month. Interest payments of $32,500 are due in June and September. A cash
dividend of $52,500 is scheduled to be paid in June. Tax payments of $25,500 are due in
June and September. There is a scheduled capital outlay of $350,000 in September.
Archer Electronics’ ending cash balance in May is $22,500. The minimum desired cash
balance is $10,500. Prepare a schedule of monthly cash receipts, monthly cash payments,
and a complete monthly cash budget with borrowing and repayments for June through
September. The maximum desired cash balance is $50,500. Excess cash (above $50,500) is
used to buy marketable securities. Marketable securities are sold before borrowing funds in
case of a cash shortfall (less than $10,500).
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of McGraw-Hill Education.
