Prepare a cash flow forecast

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Reference no: EM13177214

1. AudioFile Products Ltd. is a retailer that sells sound systems. The company is planning its cash needs for the month of January, 2013. In the past, AudioFile has had to borrow money during the post-Christmas season to offset a significant decline in sales. The following information has been assembled to assist in preparing a cash flow forecast for January.

a. January 2013 forecasted income statement:

Sales $200,000

Cost of goods sold 150,000

Gross profit 50,000

Variable selling expenses $10,000

Fixed administrative expenses 20,000 30,000

Forecast net operating income $ 20,000

b. Sales are 10% for cash and 90% on credit.

c. Credit sales are collected over a three-month period with 40% collected in the month of sale, 30% in the following month, and 20% in the second month following sale. November 2012 sales totaled $300,000 and December sales totaled $500,000.

d. 40% of a month's inventory purchases are paid for in the same month. The remaining 60% are paid in the following month. Accounts payable relate solely to inventory purchases. At December 31, these totaled $400,000.

e. The company maintains its ending inventory levels at 60% of the cost of the merchandise to be sold in the following month. The merchandise inventory at December 31, 2012 was $90,000. February 2013 sales are budgeted at $150,000. Gross profit percentage is expected to remain unchanged.

f. The company pays a $10,000 monthly cash dividend to shareholders.

g. The cash balance at December 31 was $30,000; the company must maintain a cash balance of at least this amount at the end of each month.

h. The company can borrow on its operating loan in increments of $10,000 at the beginning of each month, up to a total loan balance of $500,000. The interest rate on this loan is 1% per month. There is no operating loan at December 31, 2012.

Required: Prepare a Cash Flow Forecast for AudioFile for the month of January 2013. Include appropriate supporting schedules.

Reference no: EM13177214

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