Smith-John Cash Budget

Smith-John makes standard sized widgets for the frazzle industry. These widgets are sold for $0.75 each. Mr. Smith and Mr. John are asking you to assist with preparations for a meeting with their banker to arrange for financing the company for possible expansion. Use this as the context for your write-up/report.

Based on a sales forecast (below) and other data, Mr. Smith and Mr. John would like you to prepare the following items:

Schedule 1 Complete a sales forecast in dollars for January, February, and March, given the targeted sales in units of:

January 150,000; February 165,000; March 185,000

Schedule 2 Schedule of cash receipts for January, February, and March.

Prior history shows that the company collects 70% of the receivables (all sales are on credit) in the month of the sale, 20% in the first month after the sale, and the remainder in the second month after the sale. The sales in November were $198,750 and in December were $262,500.
Schedule 3 Schedule of cash payments for January, February, and March.

The company pays for materials purchased for production the month after receipt. The production units for December, for which material was purchased in December, but will not be paid until January, was 280,000 units and the material cost for those production units was $0.32 per unit. Production units for January - March are 80% of projected sales. Material costs for January - March are at $0.25 per unit.

Labor expense is direct cash outflow paid in the month incurred. Labor costs $0.10 per unit for the months January - March.

Overhead is also a direct cash outflow paid in the month incurred. Overhead costs are $0.05 per unit for the months January - March.

In addition to material, labor, and overhead costs during these three months, the company also pays for Selling Expense at 30% of sales (paid in the month incurred), and pays for interest costs of $12,000 in March. Taxes are paid monthly. Also in March, the company is planning to purchase a new machine for $75,000, to be paid for upon delivery on March 12th.

Item 4 Income Statement for January, February, and March

Using the sales, cost of goods sold (assume at 54% of sales), and selling expense information, develop a properly formatted income statement for these months. The interest cost which is paid in March should be expensed evenly across all three months for income statement purposes. Use a 30% tax rate.

Item 5 Cash Budget

Using all the data provided, develop a cash budget which will indicate either an excess amount of cash or a deficit amount (which will need to be financed) for the months of January, February, and March. The beginning amount of cash as of January 1st is $10,000. Required minimum balance is $5,000.

Lastly, the final product will be a Word document that presents each of the schedules, the Income Statement, and the Cash Budget with a narrative discussion as to the content and how each is important to the bank's decision to lend to Smith-Jones, Inc.