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Comprehensive Problem

$18-12.$ Rose Sayer, a financial analyst of Fit$-$and$-$Forget Fittings Company, is trying to develop

a cash budget for each month of $2022.$ The sales are expected to occur as follows:

Assume all of Fit$-$and$-$Forget's sales are on credit, so no cash is received immedi$-$

ately when a sale is made. It is expected that $30$ percent of Fit$-$and$-$Forget's cus$-$

tomers will pay off their accounts in the month of sale, $65$ percent will pay off

their accounts in the month following the sale, and the remaining $5$ percent of the

customers will pay off their accounts in the second month following the sale.

Assume that Fit$-$and$-$Forget's cost of materials is $20$ percent of sales. Fit$-$and$-$Forget

manufactures fittings expected to be sold in February one month ahead of time, in

January. They order all the materials they need for January's production schedule one

month ahead of time, in December. This schedule repeats for each month of the year.

Fit$-$and$-$Forget makes all purchases on credit and pays for the material purchased in

the following manner: $20$ percent is paid in cash in the month of ordering, and the bal$-$

ance of $80$ percent is paid in cash during the month following the purchase. That is$,$

$20$ percent of December's purchase orders are paid for in December, and the balance

of $80$ percent is paid in January, and so on$.$ Assume Fit$-$and$-$Forget's remaining cash

outflows are all direct expenses paid for in the month incurred as follows:

$-$Production expenses other than purchases are equal to $14$ percent of purchases.

$-$Sales and marketing expenses are $16$ percent of sales each month.

$-$General and administrative expenses are $$180,000$ each month.

$-$Interest expense is expected to be $$500,000$ for the year. Assume it will be paid

all at once in December $2022.$

$-$Fit$-$and$-$Forget's income tax bill for $2022$ is expected to be $$1,600,000.$ The bill

will be paid in four equal installments in April, June, September, and December.

$-$Two semiannual dividends of $$855,000$ each are expected to be declared in

These will be paid in June and December.

Assuming a cash balance of $$1,133,000$ at the beginning of January, a desired tar$-$

get cash balance of $$1,110,000,$ and short$-$term loans of $$50,000$ outstanding at the

beginning of the month, calculate total cash inflows, total cash outflows, net cash

gain $($loss$),$ cash flow summary, and external financing $($if any$)$ summary in the

same format as in Table $18-7.$

Cash Inflows:

Sales

$($reference only; not a cash flow$)$ Cash collections:

$\backslash$table$[[$in month of sale$],[$first month after sa$]]$ first month after sale

second month after sale Total monthly cash collections

Cash Outflows:

Materials Purchases

$($reference only; not a cash flow$)$ in month of materials purchases: in month following Other cash payments: Production costs othe Selling and marketing Expenses General and Administrative Expenses Taxest Payments Tax payments Dividend payments

Net Cash Gain$($Loss$)$

Cash Flow Summary:

$($in $$000$ s$)$

Cash Balance at start of month $2.$ Net Cash Gain$($Loss$)$ during month $4.$ Minimum Cash Balance Donth before financing $5.$ Surplus cash$($deficit$)$

External Financing Summary: $q,($in $$000$s$)$

$6.$ External financing balance at start of month New financing required $8.$ Financing repayments

$9.$ External financing balance at end of month

$10.$ Cash balance at end of month after financing