Business Department
Financial Reporting & Analysis
MBA 1st & 3rd
Class task 6
Topic: Financial Planning & Analysis
1. The company has received a large order and anticipates the need to go to its bank to increase its
borrowings. As a result, it needs to forecast its cash requirements for January,
February, and March. Typically, the company collects 20 percent of its sales in the month of sale,
70 percent in the subsequent month, and 10 percent in the second month after the sale. All
sales are credit sales.
Purchases of raw materials to produce malt are made in the month prior to the sale and amount
to 60 percent of sales in the subsequent month. Payments for these purchases occur in the
month after the purchase. Labor costs, including overtime, are expected to be $150,000 in
January, $200,000 in February, and $160,000 in March. Selling, administrative, tax, and other
cash expenses are expected to be $100,000 per month for January through March. Actual sales
in November and December and projected sales for January through April are as follows (in
thousands):
November
$500
February
$1,000
December
$600
March
$650
January
$600
April
$750
On the basis of this information:
a. Prepare a cash budget for the months of January, February, and March.
b. Determine the amount of additional bank borrowings necessary to maintain a cash balance of
$50,000 at all times. (Ignore interest on such borrowings.)
2. Prepare a cash budget for the Ace Manufacturing Company, indicating receipts and
disbursements for May, June, and July. The firm wishes to maintain at all times a minimum cash
balance of $20,000. Determine whether or not borrowing will be necessary during the period,
and if it is, when and for how much. As of April 30, the firm had a balance of $20,000 in cash.
ACTUAL SALES January $50,000 February 50,000 March 60,000 April 60,000
FORECASTED SALES May $70,000 June 80,000
July 100,000 August 100,000
 Accounts receivable: 50 percent of total sales are for cash. The remaining 50 percent will be
collected equally during the following two months (the firm incurs a negligible bad-debt loss).
 Cost of goods manufactured: 70 percent of sales: 90 percent of this cost is paid the following
month and the remaining 10 percent one more month later.
 Selling, general, and administrative expenses: $10,000 per month plus 10 percent of sales. All
of these expenses are paid during the month of incurrence.
 Interest payments: A semiannual interest payment on $150,000 of bonds outstanding (12
percent coupon) is paid during July.
 Dividends: A $10,000 dividend payment will be declared and made in July.
 Capital expenditures: $40,000 will be invested in plant and equipment in June.
 Taxes: Income tax payments of $1,000 will be made in July