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:

Actual Forecast Additional Information

November $120,000 January $190,000 April forecast $230,000

December 140,000 February 210,000

March 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 its paid in the month of sales. Selling and administrative expense is 5 percent of sales and is also 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.

4-20. Continued

Solution:

Juan's Taco Company

Cash Receipts Schedule

November December January February March April

Sales $120,000 $140,000 $190,000 $210,000 $230,000 $230,000

Credit sales (70%) 84,000 98,000 133,000 147,000 161,000 161,000

Cash sales (30%) 36,000 42,000 57,000 63,000 69,000 69,000

Collections (month after credit sales) 40% 33,600 39,200 53,200 58,800 64,400

Collections (two months after credit sales) 60% 50,400 58,800 79,800 88,200

Total Cash Receipts $146,600 $175,000 $207,600

Copyright Ð'© 2005 by The McGraw-Hill Companies, Inc.

4-20. Continued

Juan's Taco Company

Cash Payments Schedule

January February March

Payments for Material Purchases (20% of current month's sales) $ 38,000 $ 42,000 $46,000

Labor Expense (50% of sales) 95,000 105,000 115,000

Selling and Admin. Exp. (5% of sales) 9,500 10,500 11,500

Overhead 12,000 12,000 12,000

Taxes 20,000

Dividends 16,000

Total Cash Payments* $154,500 $169,500 $220,500

*The $25,000 of depreciation is excluded because it is not a cash expense.

Copyright Ð'© 2005 by The McGraw-Hill Companies, Inc.

4-20. Continued

Juan's Taco Company

Cash Budget

January February March

Total Cash Receipts $146,600 $175,000 $207,600

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