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ACCT504 Case Study 3 on Cash Budgeting
The cash budget was covered during Week 4 when we covered TCO D and you read Chapter 7. There is also a practice case study to work on. Your professor will provide the solution to the practice case study at the end of Week 5. This case study should be uploaded by 11:59 p.m. mountain time on Sunday at the end of Week 6 to the Week 6 Assignment Dropbox. You are encouraged to use the Excel template file provided in Doc Sharing.
The LBJ Company has budgeted sales revenues as follows.
April May June
Credit sales $94,000 $89,500 $75,000
Cash sales 48,000 75,000 57,000
Total sales $142,000 $164,500 $132,000
Past experience indicates that 30% of the credit sales will be collected in the month of sale and the remaining 70% will be collected in the following month.
Purchases of inventory are all on credit and 40% is paid in the month of purchase and 60% in the month following purchase. Budgeted inventory purchases are $195,000 in April, $135,000 in May, and $63,000 in June.
Other budgeted cash receipts: (a) sale of plant assets for $33,000 in May, and (b) sale of new common stock for $50,000 in June. Other budgeted cash disbursements: (a) operating expenses of $15,000 each month, (b) selling and administrative expenses of $10,150 each month, (c) purchase of equipment for $35,000 cash in May, and (d) dividends of $20,000 will be paid in June.
The company has a cash balance of $20,000 at the beginning of May and wishes to maintain a minimum cash balance of $20,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 10%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of May 1.
Requirements:
1. Use this information to prepare a cash budget for the months of May and June, using the template provided in Doc Sharing.
2. What are the three sections of a cash budget, and what is included in each section?
3. Why is a cash budget so vital to a company?
4. What are the five basic principles of cash management that a company can follow in order to improve its chances of having adequate cash?
Grading Rubric for Cash Budget Case Study
CategoryPoints%DescriptionDocumentation and Formatting6 10%Case Study worksheet will be done in Excel and will contain formulas to receive maximum credit.Organization and Cohesiveness6 10%A quality solution will include the content properly organized in accordance with the instructions provided. The cash budgets will be complete and the analysis will be consistent with the cash budgets presented.Editing6 10%Quality work will be free of any mathematical, spelling, punctuation, or grammatical errors. Sentences and paragraphs (where appropriate) will be clear, concise, and factually correct.Content42 70%A quality project will have all required work completed and will be correct. Total60100%A quality project will meet or exceed all of the requirements.
Cash Budget
Template
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May June
April
May
June
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Please answer the three qualitative questions on the next tab called
Qualitative Questions
.
Qualitative Questions
| 1) | What are the three sections of a cash budget, and what is included in each section? |
| 2) | Why is a cash budget so vital to a company? |
| 3) | What are the five basic principles of cash management that a company can follow in order to improve its chances of having adequate cash? |
ACCT504 Sample Case Study 3 on
Cash Budget
ing Solution
It is recommended that you share this solution file in Doc Sharing by the end of Week 5 with your students.
The Cambridge Company has budgeted sales revenues as follows.
Jan Feb Mar
Credit sales $45,000 $36,000 $27,000
Cash sales 27,000 76,500 58,500
Total sales $72,000 $112,500 $85,500
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.
Purchases of inventory are all on credit and 40% is paid in the month of purchase and 60% in the month following purchase. Budgeted inventory purchases are $97,500 in January, $67,500 in February, and $31,500 in March.
Other budgeted cash receipts: (a) sale of plant assets for $18,525 in February, and (b) sale of new common stock for $25,275 in March. Other budgeted cash disbursements: (a) operating expenses of $10,125 each month, (b) selling and administrative expenses of $18,750 each month, (c) dividends of $28,500 will be paid in February, and (d) purchase of equipment for $9,000 cash in March.
The company has a cash balance of $15,000 at the beginning of February and wishes to maintain a minimum cash balance of $15,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of February
1.
Requirements:
1. Use this information to prepare a cash budget for the months of February and March using the template provided in Doc Sharing.
ACCT 504 Sample Case Study 3 On Cash Budgeting Solution
1.
CAMBRIDGE COMPANY
Cash Budget
For the 2 Months of February and March
Feb Mar
Beginning cash balance $15,000 $15,000
Add: Receipts
Collections from customers 39,600 30,600
Sale of plant assets 18,525
Sale of new common stock 25,275
Cash sales 76,500 58,500
Total receipts 134,625 114,375
Total available cash 149,625 129,375
Less: Disbursements
Purchases of inventory 85,500 53,100
Operating expenses 10,125 10,125
Selling and administrative expenses 18,750 18,750
Dividends 28,500
Equipment purchase 9,000
Total disbursements 142,875 90,975
Excess (deficiency) of available cash over disbursements 6,750 38,400
Financing
Borrowings 8,250
Repayments (8,415)*
Ending cash balance $15,000 $29,985
*8,250 × 12% × 2/12 = $165 + $8,250 = $8,415
Schedule of Expected Collections From Customers
Credit sales Feb Mar
Jan (45,000 × 40%) $18,000
Feb ($36,000 x 60%), Mar ($36,000 x 40%) 21,600 $ 14,400
Mar ($27,000 × 60%) 16,200
Total collections $39,600
$30,600
Schedule of Expected Payments for Purchase of Inventory
Inventory purchases Feb Mar
Jan ($97,500 x 60%) $58,500
Feb ($67,500 x 40%), Mar ($67,500 x 60%) 27,000 $40,500
Mar ($31,500 x 40%) 12,600
Total payments $85,500 $53,100
ACCT504 Sample Case Study 3 on
Cash Budget
ing Solution
It is recommended that you share this solution file in Doc Sharing by the end of Week 5 with your students.
The Cambridge Company has budgeted sales revenues as follows.
Jan Feb Mar
Credit sales $45,000 $36,000 $27,000
Cash sales 27,000 76,500 58,500
Total sales $72,000 $112,500 $85,500
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.
Purchases of inventory are all on credit and 40% is paid in the month of purchase and 60% in the month following purchase. Budgeted inventory purchases are $97,500 in January, $67,500 in February, and $31,500 in March.
Other budgeted cash receipts: (a) sale of plant assets for $18,525 in February, and (b) sale of new common stock for $25,275 in March. Other budgeted cash disbursements: (a) operating expenses of $10,125 each month, (b) selling and administrative expenses of $18,750 each month, (c) dividends of $28,500 will be paid in February, and (d) purchase of equipment for $9,000 cash in March.
The company has a cash balance of $15,000 at the beginning of February and wishes to maintain a minimum cash balance of $15,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of February
1.
Requirements:
1. Use this information to prepare a cash budget for the months of February and March using the template provided in Doc Sharing.
ACCT 504 Sample Case Study 3 On Cash Budgeting Solution
1.
CAMBRIDGE COMPANY
Cash Budget
For the 2 Months of February and March
Feb Mar
Beginning cash balance $15,000 $15,000
Add: Receipts
Collections from customers 39,600 30,600
Sale of plant assets 18,525
Sale of new common stock 25,275
Cash sales 76,500 58,500
Total receipts 134,625 114,375
Total available cash 149,625 129,375
Less: Disbursements
Purchases of inventory 85,500 53,100
Operating expenses 10,125 10,125
Selling and administrative expenses 18,750 18,750
Dividends 28,500
Equipment purchase 9,000
Total disbursements 142,875 90,975
Excess (deficiency) of available cash over disbursements 6,750 38,400
Financing
Borrowings 8,250
Repayments (8,415)*
Ending cash balance $15,000 $29,985
*8,250 × 12% × 2/12 = $165 + $8,250 = $8,415
Schedule of Expected Collections From Customers
Credit sales Feb Mar
Jan (45,000 × 40%) $18,000
Feb ($36,000 x 60%), Mar ($36,000 x 40%) 21,600 $ 14,400
Mar ($27,000 × 60%) 16,200
Total collections $39,600
$30,600
Schedule of Expected Payments for Purchase of Inventory
Inventory purchases Feb Mar
Jan ($97,500 x 60%) $58,500
Feb ($67,500 x 40%), Mar ($67,500 x 60%) 27,000 $40,500
Mar ($31,500 x 40%) 12,600
Total payments $85,500 $53,100
