CP 4-2.

Solution:
Marsh Corporation
Forecasting with Seasonal Production
Dec. Jan. Feb. Mar.
Projected 1,500,000 1,700,000 1,200,000 1,400,000
Unit Sales
+Desired 2,900,000 2,600,000 3,400,000 4,500,000
Ending
Inventory
(2 months
supply)
Beginni 2,600,000 2,900,000 2,600,000 3,400,000
ng
Inventor
y
Units to be 1,800,000 1,400,000 2,000,000 2,500,000
Produced

4-1
CP 4-2. (Continued)
Monthly Cash Payments
Dec. Jan. Feb. Mar.
Units to be
produced 1,800,000 1,400,000 2,000,000 2,500,000
Materials
(from previous
month) $ 93,600 $ 84,000 $ 120,000
Labor ($20 per
thousand
units) $ 28,000 $ 40,000 $ 50,000
Overhead ($10
per thousand
units) $ 14,000 $ 20,000 $ 25,000
Selling & adm.
expense (20%
of sales) $ 52,700 $ 37,200 $ 43,400
Interest $ 8,000
Taxes (40%
tax rate) $64,560*
Dividends $48,420*
Total
Payments $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

Nov. Dec. Jan. Feb. Mar.

Sales $175,000 $232,500 $263,500 $186,000 $217,000
Collection 87,500 116,250 131,750 93,000
s (50% of
Previous
month)
Collection 87,500 116,250 131,750
s (50% of
2 months
earlier)
Total $203,750 $248,000 $224,750
Collection
s

Monthly Cash Flow

January February March
Cash Receipts $203,750 $248,000 $224,750
Cash Payments 188,300 181,200 359,380
Net Cash Flow 15,450 66,800 (134,630)

4-3
CP 4-2. (Continued)
Marsh Corporation
Cash Budget
January February March
Net Cash Flow $15,450 $66,800 $(134,630)
Beginning Cash Balance 30,000 25,000 25,000
Cumulative Cash Balance $45,450 $91,800 ($109,630)
Loans and (Repayments) -0- -0- 47,380
Cumulative Loans -0- -0- 47,380
Marketable Securities 20,450 66,800 (87,250)
Cumulative Marketable 20,450 87,250 -0-
Securities
Ending Cash Balance $25,000 $25,000 $25,000

Marsh Corporation
Pro Forma Income Statement
Jan. Feb. Mar. Total
Sales $263,500 $186,000 $217,000 $666,500
Cost of Goods Sold 139,400 98,400 126,000 363,800
Gross Profit 124,100 87,600 91,000 302,700
Selling and Admin. 52,700 37,200 43,400 133,300
Expense
Interest Expense 2,667 2,667 2,666 8,000
Net Profit Before Tax $ 68,733 $ 47,733 $ 44,934 $161,400
Taxes 27,493 19,093 17,974 64,560
Net Profit After Tax $ 41,240 $ 28,640 $ 26,960 $ 96,840
Less: Common 48,420
Dividends
Increase in Retained $ 48,420
Earnings

4-4
CP 4-2. (Continued)
Marsh Corporation
Cost of Goods Sold
Unit Cost per thousand Unit cost per thousand
before January 1st after January 1st
Material........... $52 $60
Labor............... 20 20
Overhead.......... 10 10
$82 $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 Liabilities &
Stockholders' Equity
Current Assets: Current Liabilities:
Cash $ 25,000 Accounts Payable $ 150,000
Accounts Receivable 310,000 Notes Payable 47,380
Inventory 405,000 Long-Term Debt 400,000
Plant & Equip: Net 800,000 Stockholders' Equity: 504,200
Plan Common Stock
Retained Earnings, 438,420
Total Liabilities &
Total Assets $1,540,000 Stockholders' Equity $1,540,000

4-5
CP 4-2. (Continued)

Explanation of Changes in the Balance Sheet:

Cash = ending cash balance from cash budget in March
Accounts receivable = $217,000
all of March sales 93,000
plus 50% of Feb. $310,000
sales

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

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