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"We really need to get this new material-handling equipment in operation just after the new year begins. I hope we can finance it largely with cash and marketable securities, but if necessary we can get a short-term loan down at MetroBank." This statement by Beth Davies-Lowry, president of Intercoastal Electronics Company, concluded a meeting she had called with the firm's top management. Intercoastal is a small, rapidly growing wholesaler of consumer electronic products. The firm's main product lines are small kitchen appliances and power tools. Marcia Wilcox, Intercoastal's General Manager of Marketing, has recently completed a sales forecast. She believes the company's sales during the first quarter of 20x1 will increase by 10 percent each month over the previous month's sales. Then Wilcox expects sales to remain constant for several months.

Intercoastal's projected balance sheet as of December 31, 20x0, is as follows:

Cash .................................................................................................................................................. $ 35,000

Accounts receivable ............................................................................................................................ 270,000

Marketable securities .......................................................................................................................... 15,000

Inventory ............................................................................................................................................ 154,000Buildings and equipment (net of accumulated depreciation) ................................................................... 626,000

Total assets ........................................................................................................................................$1,100,000

Accounts payable ................................................................................................................................ $ 176,400

Bond interest payable .......................................................................................................................... 12,500

Property taxes payable ........................................................................................................................ 3,600Bonds payable (10%; due in 20x6) ....................................................................................................... 300,000

Common stock ................................................................................................................................... 500,000

Retained earnings ............................................................................................................................... 107,500

Total liabilities and stockholders' equity ................................................................................................$1,100,000

Jack Hanson, the assistant controller, is now preparing a monthly budget for the first quarter of 20x1. In the process, the following information has been accumulated:

1 . Projected sales for December of 20x0 are $400,000. Credit sales typically are 75 percent of total sales. Intercoastal's credit experience indicates that 10 percent of the credit sales are collected dur-ing the month of sale, and the remainder are collected during the following month.

2 . Intercoastal's cost of goods sold generally runs at 70 percent of sales. Inventory is purchased on account, and 40 percent of each month's purchases are paid during the month of purchase. The remainder is paid during the following month. In order to have adequate stocks of inventory on hand, the firm attempts to have inventory at the end of each month equal to half of the next month's projected cost of goods sold.

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