The Marsh company makes standard size 2 inch fasteners,which it sells for $155 per thousand.
Mr. Marsh is the majority owner and manages the inventory and finances of the company. He
Estimates sales for the following months to be.
Month Fasteners
Jan $263,000 1,700,000
Feb $186,000 1,200,000
Mar $217,000 1,400,000
April $310,000 2,000,000
May $387,500 2,500,000
Last year Marsh corp sales were $175,000 in November and $232,500 in December.(1,500,000 fasteners.
Mr. Marsh is preparing for a meeting with his banker to arrange the financing for the first quater.
Based on his sales focast and the following information he provided please prepare a monthly cash budget,
monthly and quaterly pro forma income statements,a pro forma quaterly balance sheet and all the
necessary supporting schedules for the first quater.
Past histroy shows that the Marsh corp collects 50 % of it accounts recievable in the normal 30 day
period( the month after the sale)and the other 50 % in 60 days. It pays for materials 30 days after
receipt. In general mr. Marsh likes to keep a 2 months supply in inventory in anticipation of sales.
Inventory at the begining of December was 2,600,000 units.
The major cost of the production is the purchase of raw materials in the form of stell rods,which
are cut threaded and finished.last year raw material costs were $ 52.00 per 1,000 fasteners but mr. Marsh
has just been notifed that material cost have risen,effective January1,to $60.00 per 1,000 fasteners. The March
corp uses fifo inventory accounting. Labor costs are relitivly constant at $20.00 per thousand fasteners,
since workers are paid on a piece work basis.
Over head is allocated at $10.00 per thousand units and selling and administrative expense is 20% os sales.
Labor expenses and overhead are direct cash outflows paid in the month incurred,while intrest and taxes are paid
quaterly.
The corp usually maintains a min cash budget of 25,000 and it puts its excess cash into marketable securities
The average tax rate is 40% and mr, marsh usaullt pays out 50% of the net income in dividens and to stock
holders. Marcketable securities are sold before funds are borrowed when when a cash shortage is faced. Ignore
the intrest on any short-term borrowings. Intreat on the long-term debt is paid in March as are the taxes and
dividens.
As of year-end, the marsh Corp balance sheet was as followed.
December 31,200X
Current Assets
Cash $30,000
Accounts receivable 320,000
inventory 237,000
Total assets $587,800
Fixed assets
plant and equipment 1,000,000
Less: accumulated depreciation 200,000
Total assets 800,000
________
1,387,800
Liabilities and stock holders equity
Accounts payable $93,600
notes payable 0
Long-term debt,8 percent 400,000
common stock 504,200
retained earnings 390,000
total liabilities and stockholders equity $1,387,800
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