Running head: PROBLEM SET I

Problem Set I Problem Set I
4-20
Juan’s Taco Company has restaurants in five college towns. Juan wants to expand into Austin and College Station and needs a bank loan to do this. Mr. Bryan, the banker, will finance construction if Juan can present an acceptable three-month financial plan for January through March. The following are actual and forecasted sales figures:
Table 1
Actual
November $120,000
December 140,000
Forecast
January $190,000
February 210,000
March 230,000
April $230,000

Of Juan’s sales, 30 percent are for cash and the remaining 70 percent are on credit. Of credit sales, 40 percent are paid in the month after sale and 60 percent are paid in the second month after the sale. Materials cost 20 percent of sales and are paid for in cash. Labor expense is 50 percent of sales and it is paid in the month of sales. Selling and administrative expense is 5 percent of sales and is paid in the month of sale. Overhead expense is $12,000 in cash per month; depreciation expense is $25,000 per month. Taxes of $20,000 and dividends of $16,000 will be paid in March. Cash at the beginning of January is $70,000 and the minimum desired cash balance is $65,000.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.
Table 2
Cash Receipts Schedule Sales Credit sales (70%) Cash sales (30%) Collections (month after credit sales) 40% Collections (two months after credit sales) 60% Total Cash Receipts
November $120,000 84,000 36,000
December $140,000 98,000 42,000 33,600
January $190,000 133,000 57,000 39,200 50,400
February $210,000 147,000 63,000 53,200 58,800 $146,600
March $230,000 161,000 69,000 58,800 79,800 $175,000
April
$230,000 161,000 69,000 64,400 88,200 $207,600

Table 3
Cash Payments