Problem in Financial Planning #1 (in class)
Assignment: 1. Prepare a monthly cash budget for January – March. 2. Prepare a pro-forma Income Statement and Balance Sheet for the same period. Information: a. Sales are 30% for cash, 70% on open account b. Of the credit Sales, 60% are collected with a one month lag and 40% are collected with a two month lag. c. Gross profit margin on sales averages 25%. Cost of goods sold is strictly materials. d. All inventory purchases are paid one month after they are purchased. e. The store follows the policy of purchasing enough inventory each month to cover the following month’s sales at cost. f. A minimum cash balance of $3,000 is to be maintained by the store. g. Other Liabilities remain unchanged. h. There is a one month lag in the payment of wages. i. The corporate tax rate is 30%. Dec. 2001 accrued taxes are due March 15, 2002. No additional tax payment is due until June 15, 2002. j. A $3,000 dividend payment will be made in March. k. Equipment with a cost of $5,000 will be purchased in January 2002. A loan will be taken to finance the equipment, with monthly payments of $235/month at a 12% annual interest rate. Balance Sheet, December 31, 2001 $5,000 Accounts Payable 19,740 Accrued Taxes 14,500 Accrued Wages 25,000 Other Liabilities (5,200) Capital Stock Retained Earnings $59,040 Total Liab. & Equity

Cash Accounts Receivable Inventory Fixed Assets Accum. Depreciation Total Assets

$11,250 1,400 1,000 1,500 19,860 24,030 $59,040

Sales Forecast: 2002 November $18,000 (actual) December 21,000 (actual) January 15,000 February 19,000 March 27,000 April 22,000

Monthly Expenses: Wages: January February March Rent: Depreciation: Other Expenses:

$1,500 1,700 2,000 $500/month $100/month $1% of sales (paid as incurred)/month