Cash budget As you know, the two capital projects being proposed are an effort t
ID: 2796232 • Letter: C
Question
Cash budget
As you know, the two capital projects being proposed are an effort to sustain long-term growth. However, it’s important to present an accurate projection of our short-term cash requirements to ensure we have a capacity to grow.
I would like you to develop a cash budget for the months of July 2017 – December 2017. Be sure it is divided in to three sections: (1) Total Cash Receipts; (2) Total Cash Disbursements, (3) Cash or Financing covering the period of July through December. Do we have excess cash each month? Or, do we need financing each month to sustain our day-to-day operations?
The following is a summary of the cash inflows and outflows our team put together last month:
Expected gross sales for April 2017 – December 2017 are: $300,000, $300,000, $290,000, $425,000, $500,000, $600,000, $625,000, $650,000, and $700,000
5% of the sales are collected in cash each month
15% of sales are collected during the following month; 50% in the second month; 30% in the third month
Expected purchases of raw materials are 70% of the expected sales each month
The firm pays 100% of its raw materials purchases in the following month
Wages and salaries are paid monthly and are 10% of the current month’s sales
Monthly lease payments are 6% of the current month’s sales
Monthly advertising expense amounts to 8% of current month’s sales
R&D expenditures are expected to be allocated in August, September, and October at the rate of 12% of sales in those months
During December, a prepayment of insurance will be made in the amount of $24,000
During the months of July through December, the firm expects to have miscellaneous expenditures of $15,000, $20,000, $25,000, $30,000, $35,000, and $40,000
Taxes will be paid in September in the amount of $40,000 and in December in the amount of $45,000
The beginning cash balance in July is $15,000
The target cash balance is $15,000
Explanation / Answer
April May June July August September October November December (i) Total cash collection Sales 300000 300000 290000 425000 500000 600000 625000 650000 700000 Cash collections 5% of this month 15000 15000 14500 21250 25000 30000 31250 32500 35000 15% of last month 45000 45000 43500 63750 75000 90000 93750 97500 50% of last to last month 150000 150000 145000 212500 250000 300000 312500 30% of third last 90000 90000 87000 127500 150000 180000 Total cash collections(A) 15000 60000 209500 304750 323750 404500 498750 576250 625000 Total cash disbursements Purchases (70% of sales) 210000 210000 203000 297500 350000 420000 437500 455000 490000 Payment to suppliers(next month) 210000 210000 203000 297500 350000 420000 437500 455000 Wages & salaries(10% of sales) 30000 29000 42500 50000 60000 62500 65000 70000 Lease payment (6% of sales) 18000 17400 25500 30000 36000 37500 39000 42000 Advertisement (8% of sales) 24000 23200 34000 40000 48000 50000 52000 56000 R& D expenses (12% of sales) 60000 72000 75000 Pre - payment of insurance 24000 Misc. Expenses 15000 20000 25000 30000 35000 40000 Tax 40000 45000 Total cash disbursements(B) 282000 279600 320000 497500 631000 675000 628500 732000 Net cash inflow(A-B) -222000 -70100 -15250 -173750 -226500 -176250 -52250 -107000 Beginning cash balance 15000 15000 15000 15000 15000 15000 15000 15000 Ending cash balance -207000 -55100 -250 -158750 -211500 -161250 -37250 -92000 Minimum cash balance 15000 15000 15000 15000 15000 15000 15000 15000 Cumulative surplus (deficit) -222000 -70100 -15250 -173750 -226500 -176250 -52250 -107000 (Ending balance- minimum balance) (Financing) (Financing) (Financing) (Financing) (Financing) (Financing) (Financing) (Financing) Please provide feedback…. Thanks in advance…… :-)
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