Kumekucha

Input Area:

Customers paying in:

30 days 30%
60 days 60%
90 days 10%
Discount for prompt payment 2%
Labour % of expected sales 25%
Materials % of expected sales 35%
Office salaries 30
Expenses 22
Depreciation (per month) 5
Cost of loan 0.16
Loan outstanding 300
Life of loan (years) 6
Computer 15
Tax rate 30%
Tax payment due in February 20
Tax payment due in August 23
Cash balance end December 5

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Sales 100 120 180 150 120 140 150 200 240 162 120

Output Area:

Seasonal production Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Sales 100 120 180 150 120 140 150 200 240 162 120
Discounts: 2% of 30% of last month's
sales 1.08 0.90 0.72 0.84 0.90 1.20 1.44 0.97
Net cash received after discount 52.92 44.10 35.28 41.16 44.10 58.80 70.56 47.63
On time net payers 72.00 108.00 90.00 72.00 84.00 90.00 120.00 144.00
Late payers 12.00 18.00 15.00 12.00 14.00 15.00 20.00 24.00
Cash from receivables 136.92 170.10 140.28 125.16 142.10 163.80 210.56 215.63

Labour 37.50 30.00 35.00 37.50 50.00 60.00 40.50 30.00

Materials 42.00 63.00 52.50 42.00 49.00 52.50 70.00 84.00
Expenses 22.00 22.00 22.00 22.00 22.00 22.00 22.00 22.00
Office salaries 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00
Cash out 131.50 145.00 139.50 131.50 151.00 164.50 162.50 166.00

Net operating cash flow 5.42 25.10 0.78 (6.34) (8.90) (0.70) 48.06 49.63

Tax due 20.00 23.00

Computer 15.00
Loan repayment 19.68 19.68
Net cash flow for the month 5.42 5.10 (18.90) (6.34) (23.90) (20.38) 48.06 26.63
Opening cash balance 5.00 10.42 15.52 (3.38) (9.72) (33.62) (53.99) (5.93)
Available cash 10.42 15.52 (3.38) (9.72) (33.62) (53.99) (5.93) 20.70

Level production
Expected sales for next 8 months 1282
Average expected monthly sales 160.25

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Sales 100 120 180 150 120 140 150 200 240 162 120
Discounts: 2% of 30% of last month's
sales 1.08 0.90 0.72 0.84 0.90 1.20 1.44 0.97
Net cash received after discount 52.92 44.10 35.28 41.16 44.10 58.80 70.56 47.63
On time net payers 72.00 108.00 90.00 72.00 84.00 90.00 120.00 144.00
Late payers 12.00 18.00 15.00 12.00 14.00 15.00 20.00 24.00
Cash from receivables 136.92 170.10 140.28 125.16 142.10 163.80 210.56 215.63

Labour (1) 40.06 40.06 40.06 40.06 40.06 40.06 40.06 40.06
Materials (2) 42.00 63.00 52.50 56.09 56.09 56.09 56.09 56.09
Expenses 22.00 22.00 22.00 22.00 22.00 22.00 22.00 22.00
Office salaries 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00
Cash out 134.06 155.06 144.56 148.15 148.15 148.15 148.15 148.15

Net operating cash flow 2.86 15.04 (4.28) (22.99) (6.05) 15.65 62.41 67.48

Tax due 20.00 23.00

Computer 15.00
Loan repayment 19.68 19.68
Net cash flow for the month 2.86 (4.96) (23.96) (22.99) (21.05) (4.03) 62.41 44.48
Opening cash balance 5.00 7.86 2.90 (21.06) (44.05) (65.10) (69.13) (6.72)
Available cash 7.86 2.90 (21.06) (44.05) (65.10) (69.13) (6.72) 37.76

(1)
The costs of labour change with immediate effect in January where labour costs rise from 37. 5 mil to 40. 063mil. Later in the year level production labour costs drop below those of
seasonal production. The model assumes level production in line with average expected sales
(2)
Cash outflows for materials will only change in March under level production, since payment terms for purchases are 60 days.

Kumekucha
Cash Budget
60.00
Cash at month end

40.00

20.00

(20.00)

(40.00)

(60.00)

(80.00)
Jan Feb Mar Apr May Jun Jul Aug
Level Seasonal

The net result, as we see from the graph, is that a higher overdraft level from March through July will be needed if the production process is changed from seasonal to level. What the firm needs to establish is whether
the increased financing costs (note that level production will result in a build up of inventories) can be offset by any savings in labour costs as a result of not having to hire and fire workers with the season. These
potential savings are not discussed in the case.