Question: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 inentory and finances of the company. !e "stimates sales for the following months to #e.
-ast year Marsh corp sales were $1)5,((( in oem#er and $2'2,5(( in /ecem#er /ecem#er.01,5((,((( .01,5((,((( fasteners. Mr. Marsh is preparing for a meeting with his #anker to arrange the f inancing for the first uarter. ased on his sales focast and the follow ing information he proided please prepare a monthly cash #udget, monthly and uaterly pro forma income statements, a pro forma uarterly #alance sheet and all the necessary supporting schedules for the first uater.
3ast histroy shows that the Marsh corp collects 5( 4 of it accounts reciea#le in the normal '( day period0 the month after the saleand the other 5( 4 in &( days. 6t pays for materials '( days after receipt. 6n general mr. Marsh likes to keep a 2 months supply in inentory in anticipation of sales. 6nentory at the #egining of /ecem#er was 2,&((,((( units.
The major cost of the production is the purchase of raw materials in the fo rm of stell rods,which are cut threaded and finished.last year raw material costs were $ 52.(( per 1, ((( fasteners #ut mr. Marsh has just #een notifed that material cost hae risen,effectie %anuary1,to $&(.(( per 1,((( fasteners. The March corp uses fifo inentory accounting. -a#or costs are relitily constant at $2(.(( per thousand fasteners, since workers are paid on a piece work #asis.
7er head is allocated at $1(.(( per thousand units and selling and administratie e8pense is 2(4 os sales. -a#or e8penses and oerhead are direct cash outflows paid in the month incurred,while intrest and
ta8es are paid uaterly.
The corp usually maintains a min cash #udget of 25,((( and it puts its e8cess cash into marketa#le securities The aerage ta8 rate is +(4 and mr, marsh usaullt pays out 5(4 of the net income in diidens and to stock holders. Marcketa#le securities are sold #efore funds are # orrowed when when a cash shortage is faced. 6gnore the intrest on any short9term #orrowings. 6ntreat on the long9term de#t is paid in March as are the ta8es and diidens.
s of year9end, the marsh :orp #alance sheet was as f ollowed.
i8ed assets plant and euipment 1,(((,((( -ess< accumulated depreciation Total assets
*((,((( ======== 1,'*),*((
-ia#ilities and stock holders euity ccounts paya#le notes paya#le
-ong9term de#t,* percent common stock retained earnings
total lia#ilities and stockholders euity $1,'*),*((
Marsh Corporation Forecasting with Seasonal Production
Projected Unit Sales Desired !nding "n#entor$ %& 'onths suppl$( )*eginning "n#entor$ Units to be Produced
Monthl$ Cash Pa$'ents Dec.
Units to be 1,800,000 1,400,000 2,000,000 2,500,000 produced Materials %+ro' pre#ious $93,600 $84,000 $120,000 'onth( ,abor %& per thousand $28,000 $40,000 $50,000 units( /#erhead %0 per thousand $14,000 $20,000 $25,000 units( Selling 1 ad'. e2pense %&3 $52,700 $37,200 $43,400 o+ sales( "nterest $8,000 4a2es %53 ta2 $64,560* rate( $48,420* Di#idends 4otal Pa$'ents $188,300 $181,200 $359,380 *See the pro forma income statement, which follows this material later on, for the deelopment of these al!es"
Marsh Corporation Monthl$ Cash 6eceipts
Sales #ollections 50% of &reio!s month' #ollections 50% of 2 months earlier' (otal #ollections
7o#. Dec. Jan. Feb. Mar. $175,000 $232,500 $263,500 $186,000 $217,000
planation of #han.es in the -alance Sheet #ash @ endin. cash alance from cash !d.et in arch cco!nts receiale $217,000 @ all of arch sales 93,000 pl!s 50% of e" $310,000 sales nentor @ endin. inentor in arch of 4,500,000 !nits at $90 per tho!sand &lant and e?!ipment did not chan.e since we did not incl!de depreciation" ) @ ;ld ) A + B diidends' @ $390,000 A $96,840 B $48,240' @ $438,420