Projection of
Financial Requirements
Direct vs Indirect Costs
Direct Material
Direct Labor
Conversion
cost
Selling
Price
Indirect
Material/Labor
Prime
costs
Factory
Overhead
Cost
of goods
manufactured
Fixed
General/Admin
Selling
Profit
Cost
of goods
sold
Balance Sheet

Liabilities
probable future sacrifices of economic benefits as result of
current obligations
Current Liabilities - must be paid within 1 yr.

Owner Equity
ownership right of proprietors or stockholders
Changes in OE by
 investment by owner
 earnings from profitable operation of business
 withdrawals of cash of other assets
 losses from business
Accounting Equation
Owner Equity = Assets - Liabilities
K -C orp C on so lid ated Balan ce
1997
1996
$22,300
$16,800
Accounts Receivable
Invent ories
46,800
54,200
38,600
48,200
Tot al Current As set s
Other A ss ets
Land
Building
Equipment
$123,300
$103,600
100,000
85,400
78,400
100,000
94,600
85,600
Total A ss ets
$387,100
$383,800
$62,400
$55,600
5,000
20,000
$67,400
125,800
$75,600
132,300
$193,200
$207,900
100,000
93,900
100,000
75,900
$387,100
$383,800
Current A ssets
Cash
Current Liabilities
Accounts Payable
Notes
Total Current Liabilities
M ortgage
Total Liabilit ies
Owner's Equity
Paid In Capital
Retained Earnings
Total Liabilit ies &
Owner Equity
Income Statement

Projects profit/loss of an entity over a period of
time





Net Sales - gross sales less returns, defects, etc.
Cost-of-Goods sold - cost of raw material & direct labor
Selling, Gen, Admin - operating expenses of an entity
which do not directly contribute to product (sales people,
managers, ...)
Interest Expense - interest paid on long/short term debt.
Net Income/share - net income (after tax) divided by
outstanding shares
Income Statement
Revenues
-
Cost of Sales
=
Gross Margin
Op. Expenses
=
Op. Profit/Loss
Taxes
=
Net Profit/Loss
K -C orp In com e S tatem ent
Net Sales
Cos t of Goods Sold
$574,800
428,300
Gros s M argin
Operating Expens es
Sales Expens es
Depreciation Equip
Depreciation Bldg
Administrative
Utilities
Total Operating
Income from Operations
Taxes
Net Income
146,500
87,400
7,200
9,200
14,500
4,600
$122,900
23,600
5,600
$18,000
K-Corp Schedule of Cost of Goods Sold
Direct M aterials
Invnetory, Dec. 1996
Purchases
Cos t of Direct materials
available for use
Inventory, Dec. 1997
Direct M aterials Us ed
Direct Labor
Facotry Overhead:
Indirect labor
Indirect material
Utilities
Depreciation
M is cellaneous
Total M anufactirng Costs
Add: W ork in Process 1996
Less : W ork in Process 1997
Cos t of Goods M anufactured
$48,200
130,000
178,200
54,200
$124,000
209,500
43,000
27,000
5,000
16,200
4,000
95,200
$428,700
38,000
(41,000)
$425,700
K -C orp In com e S tatem ent
Net Sales
Less : Cost of Goods Sold
Finis hed Goods, Dec. 1996
Cost of Goods M anuf.
$574,800
$42,000
425,700
Cost of Goods A vail
for s ale
Finis hed Goods, Dec. 1997
$467,700
39,400
Cos t of Goods Sold
428,300
Gros s M argin
Operating Expens es
Sales Expens es
Depreciation Equip
Depreciation Bldg
Administrative
Utilities
Total Operating
574,800
Income from Operations
Taxes
Net Income
87,400
7,200
9,200
14,500
4,600
$122,900
451,900
5,600
$446,300
Changes to Owner Equity


Begin Balance - last year’s ending balance
Paid-in Capital - sold 10,000 shares at $19 /share
stock par value of $10 / share.
common stock = 10,000 x $10
= $100,000
addition paid in =10,000 x ($19-$10) = $ 90,000

Retained Earnings - cumulative net income which
has been retained for business

Dividends - distribution of earnings to stockholders
Changes to Owner Equity
Balance Sheet
8/31/96
A =L +OE
Income Statement
Revenues
- Expenses
Net Income
Statement of OE
Begin Balance
Paid in capital changes
Retained earnings
+ Net Income
- Dividends
Ending Balances
Balance Sheet
8/31/97
A = L + OE
K-Corp Income Statement
Net Sales
Cost of Goods Sold
Gross Margin
Operating Expenses
Sales Expenses
Depreciation Equip
Depreciation Bldg
Administrative
Utilities
Total Operating
Income from Operations
Taxes
Net Income
$574,800
428,300
146,500
87,400
7,200
9,200
14,500
4,600
$122,900
23,600
5,600
$18,000
Retained (97) = Retained (96) + $18,000 = $93,900
K-Corp Consolidated Balance
Current Assets
Cash
Accounts Receivable
Inventories
Total Current Assets
Other Assets
Land
Building
Equipment
Total Assets
Current Liabilities
Accounts Payable
Notes
Total Current Liabilities
Mortgage
Total Liabilities
Owner's Equity
Paid In Capital
Retained Earnings
Total Liabilities &
Owner Equity
1997
1996
$22,300
46,800
54,200
$123,300
$16,800
38,600
48,200
$103,600
100,000
85,400
78,400
$387,100
100,000
94,600
85,600
$383,800
$62,400
5,000
$67,400
125,800
$193,200
$55,600
20,000
$75,600
132,300
$207,900
100,000
93,900
100,000
75,900
$387,100
$383,800
Statement of Cash Flows


Identify the sources and use of cash during
year
Operating Activities


net income $18,000 from income statement
depreciation expense $16,400 from balance sheet
added back in because it is not an actual cash
outlay
K-Corp Cash Flows
Net Income
Add (deduct) items
Depreciation Exp
Increase in Accts Rec.
Increase in Invent.
Increase in Accts. Pay
Decrease in Notes Pay
Net Cash from Operations
Cash from Investing
Cash from Financing
Retire long term dept
Issue of long term dept
Sale of common stock
Payment of Dividends
Net Increase in Cash
$18,000
16,400
-8,200
-6,000
6,800
-15,000
$12,000
0
-6,500
0
0
0
$5,500
K-Corp Cash Flows
Net Income
Add (deduct) items
Depreciation Exp
Increase in Accts Rec.
Increase in Invent.
Increase in Accts. Pay
Increase in Notes Pay
Net Cash from Operations
Cash from Investing
Cash from Financing
Retire long term dept
Issue of long term dept
Sale of common stock
Payment of Dividends
Net Increase in Cash
$18,000
16,400
-8,200
-6,000
6,800
-15,000
$12,000
0
-6,500
0
0
0
$5,500
K-Corp Consolidated Balance
Current Assets
Cash
Accounts Receivable
Inventories
Total Current Assets
Other Assets
Land
Building
Equipment
Total Assets
Current Liabilities
Accounts Payable
Notes
Total Current Liabilities
Mortgage
Total Liabilities
Owner's Equity
Paid In Capital
Retained Earnings
Total Liabilities &
Owner Equity
1997
1996
$22,300
46,800
54,200
$123,300
$16,800
38,600
48,200
$103,600
100,000
85,400
78,400
$387,100
100,000
94,600
85,600
$383,800
$62,400
5,000
$67,400
125,800
$193,200
$55,600
20,000
$75,600
132,300
$207,900
100,000
93,900
100,000
75,900
$387,100
$383,800
Financial Projections



Pro forma financial statements
Cash Budgets
Operating Budgets
Sales Budget
Desired
Ending
Inventory
Production Budget
Direct
Material
Direct
Labor
Factory
Overhead
Cost of Good
Sold Budget
Selling Expense
Admin Expense
Budgeted Income
Capital Budget
Budgeted Balance
Cash Budget
Sales Forecast
K -C orp In com e S tatem ent
Net Sales
Cos t of Goods Sold
$574,800
428,300
Gros s M argin
Operating Expens es
Sales Expens es
Depreciation Equip
Depreciation Bldg
Administrative
Utilities
Total Operating
Income from Operations
Taxes
Net Income
146,500
87,400
7,200
9,200
14,500
4,600
$122,900
23,600
5,600
$18,000
Sales Forecast
Coke Sales
4.00
Sales
3.00
Demand
2.00
Trend
1.00
0.00
0
20
40
60
Tim e
80
100
120
Sales Forecast
Coke Sales
4.00
Sales
3.00
Demand
2.00
Trend
1.00
0.00
0
20
40
60
80
100
120
Tim e
Forecast
4.0
Sales
3.0
2.0
Demand
1.0
Forecast
0.0
0
20
40
60
Tim e
80
100
120
Example
K-Corp
Sales Budget, December 31, 1999
1
Expected Sales in units
Unit sales price
Total Sales
Expected Cash Collections
Accounts Receivable
1st quarter sales
2nd quarter sales
3rd quarter sales
4th quarter sales
Total Cash Collections
900
50
$45,000
5,000
31,500
$36,500
2
700
50
$35,000
11,250
24,500
$35,750
Quarter
3
800
50
$40,000
8,750
28,000
$36,750
4
Total
3,300
900
50
$45,000
$165,000
10,000
31,500
$41,500
$5,000
42,750
33,250
38,000
31,500
$150,500
Example (cont.)
K-Corp
Production Budget, December 31, 1999
Prev
Expected Sales in units
Desired Ending Inventory
Total Needs
Less Beginning Inventory
Units to Produce
1
40
2
900
50
950
40
910
700
60
760
50
710
Quarter
3
800
80
880
60
820
4
900
50
950
80
870
Total
3,300
50
3,540
80
3,310
Example (cont.)
K-Corp
Material Budget, December 31, 1999
Prev
Units to Produce
Alum, 5 lbs/unit
Total Material
Desired Ending Inventory
Total Needs
Less Beginning Inventory
Materials to Purchase
Unit Price
Purchase Cost
400
1
2
910
5
4,550
710
5
3,550
Quarter
3
820
5
4,100
350
4,900
400
4,500
2.5
$11,250
400
3,950
350
3,600
2.5
$9,000
400
4,500
400
4,100
2.5
$10,250
4
870
5
4,350
500
4,850
400
4,450
2.5
$11,125
Total
3,310
5
16,550
500
18,200
16,650
2.5
$41,625
Example (cont.)
K-Corp
Material Budget, December 31, 1999
Prev
Units to Produce
Alum, 5 lbs/unit
Total Material
Desired Ending Inventory
Total Needs
Less Beginning Inventory
Materials to Purchase
Unit Price
Purchase Cost
Cash Disbursements
Accounts Payable
1st quarter purchases
2nd quarter purchases
3rd quarter purchases
4th quarter purchases
Total Cash Outlay
400
1
2
910
5
4,550
710
5
3,550
Quarter
3
820
5
4,100
350
4,900
400
4,500
2.5
$11,250
400
3,950
350
3,600
2.5
$9,000
400
4,500
400
4,100
2.5
$10,250
3,500
5,625
$9,125
5,625
4,500
$10,125
4,500
5,125
$9,625
4
870
5
4,350
Total
3,310
5
16,550
500
4,850
400
4,450
2.5
$11,125
500
18,200
16,650
2.5
$41,625
5,125
5,563
$10,688
3,500
11,250
9,000
10,250
5,563
$39,563
Example (cont.)
K-Corp
Direct Labor Budget, December 31, 1999
1
Units to Produce
Direct Labor Hrs / Unit
Total Hours
Labor Cost / hr.
Total Labor Cost
910
2
1,820
12
$21,840
2
710
2
1,420
12
$17,040
Quarter
3
820
2
1,640
12
$19,680
4
870
2
1,740
12
$20,880
Total
3,310
2
6,620
12
$79,440
Example (cont.)
K-Corp
Factory Overhead Budget, December 31, 1999
Direct Labor Hours
Variable Overhead Rate
Variable Overhead
Fixed Overhad
Total Budget Overhead
1
1,820
2.25
4,095
8,000
12,095
2
1,420
2.25
3,195
8,000
11,195
Quarter
3
1,640
2.25
3,690
8,000
11,690
Less Depreciation
Cash Disbursement Ovh.
3,000
$9,095
3,000
$8,195
3,000
$8,690
4
1,740
2.25
3,915
8,000
11,915
Total
6,620
2.25
14,895
32,000
46,895
3,000
$8,915
12,000
$34,895
Example (cont.)
K-Corp
Ending Inventory, December 31, 1999
Units
Direct Materials
500
Finished Goods
50
Unit Variable Cost
Direct Materials
Direct Labor
Variable Overhead
5
2
2
Price
2.50
41.00
Total
$1,250
$2,050
2.50
12.00
2.25
Total
$12.50
24.00
4.50
$41.00
Selling & Admin Expenses
Cash Budget
K-Corp
Cash Budget, December 31, 1999
Cash Balance Beginning
Receipts
Total Cash Avail
Less Disbursements
Direct Materials
Direct Labor
Factory Overhead
Selling & Admin
Cash Surplus (Deficit)
Financing
Notes Payable
Repayment
Cash Balance
1
40,000
36,500
76,500
2
28,440
35,750
64,190
Quarter
3
20,830
36,750
57,580
9,125
21,840
9,095
8,000
10,125
17,040
8,195
8,000
9,625
19,680
8,690
8,000
10,688
20,880
8,915
8,000
28,440
20,830
11,585
4,603
4
11,585
41,500
53,085
Total
11,585
150,500
251,355
39,563
79,440
34,895
32,000
0
65,458
0
28,440
0
0
20,830
11,585
4,603
4,603
Budget Income
K-Corp
ProForma Income, FY 99
900
50
700
50
Quarter
3
800
50
45,000
35,000
40,000
45,000
165,000
11,250
21,840
9,095
2,815
9,000
17,040
8,195
765
10,250
19,680
8,690
1,380
11,125
20,880
8,915
4,080
41,625
79,440
34,895
9,040
8,000
3,000
1,200
12,200
(9,385)
0
(9,385)
8,000
3,000
1,200
12,200
(11,435)
0
(11,435)
8,000
3,000
1,200
12,200
(10,820)
0
(10,820)
8,000
3,000
1,200
12,200
(8,120)
0
(8,120)
32,000
12,000
4,800
48,800
1
Unit Sales
Price
Sales
Cost of Goods Sold
Material
Labor
Overhead
Gross Margin
Expenses
Selling & Admin
Depreciation
Utilities
Total Operating
Income from Operations
Taxes
Net Income
2
4
900
50
Total
3,300
0
(39,760)
Pro-forma Balance
K-Corp
ProForma Balance, FY 99
Dec 1998
1
2
Quarter
3
4
Dec 1999
Current Assets
Cash
Accounts Receivable
Inventories
Total Current Assets
Other Assets
Land
Building
Equipment
Total Assets
28,440
36,500
2,640
67,580
28,440
36,500
2,925
67,865
20,830
35,750
3,460
60,040
11,585
36,750
4,280
52,615
4,603
41,500
3,300
49,403
4,603
41,500
3,300
49,403
100,000
80,000
75,000
322,580
100,000
78,000
74,000
319,865
100,000
75,000
73,000
308,040
100,000
72,000
72,000
296,615
100,000
69,000
71,000
289,403
100,000
69,000
71,000
289,403
Current Liabilities
Accounts Payable
Notes Payable
Total Current Liab
Mortgage
Total Liabilities
8,000
5,000
13,000
120,000
133,000
8,000
5,000
13,000
120,000
133,000
8,000
5,000
13,000
120,000
133,000
8,000
5,000
13,000
120,000
133,000
8,000
5,000
13,000
120,000
133,000
8,000
5,000
13,000
120,000
133,000
Owner Equity
Total Liab & Owner Equity
189,580
322,580
186,865
319,865
175,040
308,040
163,615
296,615
156,403
289,403
156,403
289,403