Marsh Corporation

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 inventory and finances of the company. He
Estimates sales for the following months to be.
Month
$263,000
Jan
Feb
$186,000
Mar
$217,000
April
$310,000
$387,500
May
Last year Marsh corp sales were $175,000 in November and $232,500 in December.(1,500,000
fasteners. Mr. Marsh is preparing for a meeting with his banker to arrange the financing for the first quarter.
Based on his sales forecast and the following information he provided please prepare a monthly cash budget, monthly and quarterly pro forma income statements, a pro forma quarterly balance sheet and all the necessary supporting schedules for the first quarter.
Fasteners
1,700,000
1,200,000
1,400,000
2,000,000
2,500,000
Past history shows that the Marsh corp collects 50 % of it accounts receivable in the normal 30 day period( the month after the sale)and the other 50 % in 60 days. It pays for materials 30 days after receipt. In general Mr. Marsh likes to keep a 2 months supply in inventory in anticipation of sales. Inventory at the beginning of December was 2,600,000 units.
The major cost of the production is the purchase of raw materials in the form of steel rods, which
are cut threaded and finished. last year raw material costs were $ 52.00 per 1,000 fasteners but Mr. Marsh has just been notified that material cost have risen, effective January1,to $60.00 per 1,000 fasteners.
The March corp uses fifo inventory accounting. Labor costs are relatively constant at $20.00 per thousand fasteners, since workers are paid on a piece work basis.
Over head is allocated at $10.00 per thousand units and selling and administrative expense is 20% of sales.
Labor expenses and overhead are direct cash outflows paid in the month incurred, while intrest and taxes are paid quarterly.
The corp usually maintains a min cash budget of 25,000 and it puts its excess cash into marketable securities The average tax rate is 40% and Mr., marsh usually pays out 50% of the net income in dividends and to stock holders. Marketable securities are sold before funds are borrowed when when a cash shortage is faced. Ignore the interest on any short-term borrowings. Interest on the long-term debt is paid in March as are the taxes and dividends.
As of year-end, the marsh Corp balance sheet was as followed.
December 31,200X
Current Assets
Cash $30,000
Accounts receivable 320,000
inventory
Total assets
Fixed assets
plant and equipment 1,000,000
Less: accumulated depreciation
Total assets
237,000
$587,800
200,000
800,000
1,387,800
Liabilities and stock holders equity
Accounts payable
notes payable
Long-term debt,8 percent
common stock
retained earnings
total liabilities and stockholders equity $1,387,800
$93,600
0
504,200
390,000
400,000