Case Studies ; PDF Company Short Term Financial Planning

The PDC Company was described during the early part of this chapter. Refer to the PDC Company’s projected monthly operating schedules in Table 6.2. PDC’s sales are projected to be $80,000 in September 2017. [Note: An Excel spreadsheet for the PDC Company is available on the authors’ Web site for use by instructors.]

A. Prepare PDC’s sales schedule, purchases schedule, and the wages schedule for August 2017.

Sales Schedule :

 Schedule 1:

 Total sales = $ 92.000

 Credit sales (40%) = $ 36.800

 Cash Sales (60%) = $ 55.200

 Schedule 2:

 Cash Sales = $ 55.200

 Collection of July's credit sales = $ 46.000

 Total collections =  $ 55.200 + $ 46.000

Purchases Schedule: 

Ending inventory at end of August is estimated as: 

Forecasted September sales = $80,000 times .8 of sales coverage times .7 to reflect cost of goods sold. Thus, ($80,000 x .8 x .7) = $44,800. PDC adds a $46,000 inventory cushion to get to the target ending inventory for August of: $90,800. Cost of goods sold for August is $64,400 (i.e., $92,000 x .7). Total inventory needed is $90,800 + $64,400 = $155,200

 Schedule 3:

 $155,200 total inventory needed minus $97,520 beginning inventory (i.e., ending inventory from July) = $57,680 purchases

 Schedule 4:

 Calculated as 50% of July’s purchases plus 50% of August’s purchases: ($67,620 x .5) + ($57,680 x .5) = $33,810 + $28,840 = $62,650

Wages and Commissions Schedule: 

    Schedule 5:

Fixed portion = $5,750. Commissions = 15% of August sales ($92,000 x .15) = $13,800. Total wages and commissions = $5,750 + $13,800 = $19,550

    Schedule 6: 

 Disbursements (Wages and Commissions) Calculated as 50% of July’s total wages/commissions plus 50% of August’s total wages/commissions: ($23,000 x .5) + ($19,550 x .5) = $11,500 + $9,775 = $21,275

 

B. Prepare a cash budget for August 2017 for the PDC Company and describe how the forecast affects the end-of-month cash balance.