CP 4-2.
Solution:
Marsh Corporation
Forecasting with Seasonal Production
Projected
Unit Sales
+Desired
Ending
Inventory
(2 months
supply)
Beginning
Inventory
Units to be
Produced
Dec.
1,500,000
Jan.
1,700,000
Feb.
1,200,000
Mar.
1,400,000
2,900,000
2,600,000
3,400,000
4,500,000
2,600,000
2,900,000
2,600,000
3,400,000
1,800,000
1,400,000
2,000,000
2,500,000
4-1
CP 4-2. (Continued)
Monthly Cash Payments
Dec.
Units to be
produced
Materials
(from previous
month)
Labor ($20 per
thousand
units)
Overhead ($10
per thousand
units)
Selling & adm.
expense (20%
of sales)
Interest
Taxes (40%
tax rate)
Dividends
Total
Payments
1,800,000
Jan.
Feb.
Mar.
1,400,000
2,000,000 2,500,000
$ 93,600
$ 84,000 $ 120,000
$ 28,000
$ 40,000 $ 50,000
$ 14,000
$ 20,000 $ 25,000
$ 52,700
$ 37,200
$ 43,400
$ 8,000
$64,560*
$48,420*
$188,300
$181,200
$359,380
*See the pro forma income statement, which follows this material later on,
for the development of these values.
4-2
CP 4-2. (Continued)
Marsh Corporation
Monthly Cash Receipts
Sales
Collections
(50% of
Previous
month)
Collections
(50% of 2
months
earlier)
Total
Collections
Nov.
$175,000
Dec.
$232,500
87,500
Jan.
$263,500
116,250
Feb.
$186,000
131,750
Mar.
$217,000
93,000
87,500
116,250
131,750
$203,750
$248,000
$224,750
Monthly Cash Flow
Cash Receipts
Cash Payments
Net Cash Flow
January
$203,750
188,300
15,450
February
$248,000
181,200
66,800
4-3
March
$224,750
359,380
(134,630)
CP 4-2. (Continued)
Marsh Corporation
Cash Budget
Net Cash Flow
Beginning Cash Balance
Cumulative Cash Balance
Loans and (Repayments)
Cumulative Loans
Marketable Securities
Cumulative Marketable
Securities
Ending Cash Balance
January
February
$15,450
$66,800
30,000
25,000
$45,450
$91,800
-0-0-0-020,450
66,800
20,450
87,250
$25,000
$25,000
March
$(134,630)
25,000
($109,630)
47,380
47,380
(87,250)
-0$25,000
Marsh Corporation
Pro Forma Income Statement
Sales
Cost of Goods Sold
Gross Profit
Selling and Admin.
Expense
Interest Expense
Net Profit Before Tax
Taxes
Net Profit After Tax
Less: Common
Dividends
Increase in Retained
Earnings
Jan.
Feb.
Mar.
Total
$263,500
$186,000
$217,000 $666,500
139,400
98,400
126,000 363,800
124,100
87,600
91,000 302,700
52,700
37,200
43,400 133,300
2,667
$ 68,733
27,493
$ 41,240
2,667
$ 47,733
19,093
$ 28,640
2,666
$ 44,934
17,974
$ 26,960
8,000
$161,400
64,560
$ 96,840
48,420
$ 48,420
4-4
CP 4-2. (Continued)
Marsh Corporation
Cost of Goods Sold
Unit Cost per thousand
before January 1st
$52
20
10
$82
Material ...........
Labor.................
Overhead ..........
Unit cost per thousand
after January 1st
$60
20
10
$90
Ending inventory as of December 31 was 2,900,000; therefore, sales for
January and February had a cost of goods sold per thousand units of $82,
and March sales reflect the increased cost of $90 per thousand units using
FIFO inventory methods.
Pro Forma Balance Sheet (March)
Assets
Current Assets:
Cash
Accounts Receivable
Inventory
Plant & Equip: Net
Plan
Total Assets
$ 25,000
310,000
405,000
800,000
$1,540,000
Liabilities &
Stockholders' Equity
Current Liabilities:
Accounts Payable
Notes Payable
Long-Term Debt
Stockholders' Equity:
Common Stock
Retained Earnings,
Total Liabilities &
Stockholders' Equity
4-5
$ 150,000
47,380
400,000
504,200
438,420
$1,540,000
CP 4-2. (Continued)
Explanation of Changes in the Balance Sheet:
Cash = ending cash balance from cash budget in March
Accounts receivable =
all of March sales
plus 50% of Feb.
sales
$217,000
93,000
$310,000
Inventory = ending inventory in March of 4,500,000 units at $90 per
thousand
Plant and equipment did not change since we did not include depreciation.
RE  Old RE   NI  dividends 
 $390,000   $96,840  $48,240  $438,420
4-6