Net sales – Sales forecast for 1994 is used as there is no big difference in terms of sales for seasonal or level production. COGS – According to the case 65.1% of sales for the current month. Operating expenses – Seasonal projection 200 plus additional storage and handling cost 115/12 in case of shift to level production. The amount is the same for each month because in case study it is assumed operating expenses are likely to be incurred evenly throughout the year. Interest expense – Long-term Loan – 9.63%/12, Notes payable to bank – 9%/12. Interest Income – Cash – 4%/12.
Provision for income taxes – Income tax rate 34% as it was under seasonal assumption.
Cash – Minimum requirement is 200. Excess of total liabilities over total assets is added to the minimum amount in order to balance sides of the balance sheet. Accounts receivable, net – Accounts Receivable are not affected by change in approach as in case of sales. Inventory = Beg. Inventory + production – COGS. Production is calculated based on assumption that total yearly production equals total COGS for 1994, in other words, what is produced is sold. The logic is that inventory is set at 586 at the beggining of the year, in order to maintain this minimum balance we have to assume that sales (COGS) must be the same as goods produced. The number is evenly allocated\ to months in 1994. Net Plant and Equipment – There is no intention of acquiring new fixed asset. In this case there is no difference between seasonal and level production.
Accounts payable – According to the case the company plans to purchase materials needed for production costing 3,000 during 1994. We get monthly 250 for purchases. Credit terms are Net 30 meaning that this amount is due in 30 days. To illustrate, suppose company has 250 payable at the end of January, at the end of February it will cover the payable however balance sheet will still show 250 reflecting payable created in February that will be due at the end of March etc. Notes payable, bank – Notes payable are 0 if total assets are greater than total liabilities and net worth but are calculated by the difference between assets and liabilities & net worth in case former is greater than the latter.
Accrued taxes – Accrued taxes are calculated by adding provision for income tax for the current month to the previous month accrued tax. However, as it is mentioned in the case study income taxes for 1993 are due in March 1994. Forecasted income tax for 1994 is 140 and is paid by four installments 25% each in the months of April, June, September and December 1994. Long-term debt, current portion – It is unchanged for the level production. Long-term Debt – Long-term debt is reduced by 25 in June and December. Shareholder’s Equity – Net income for the month added to the previous month Shareholder’s Equity balance.