Assignment Type: Group Project Deliverable Length: 1 Excel S

Assignment Typegroup Projectdeliverable Length1 Excel Spreadsheet An

Read the relevant parts of your textbook regarding cash flow and financial planning. Develop a cash budget for Cyrus Brown Manufacturing (CBM) over a 9-month period, from March through November, based on the provided sales forecast, collection estimates, costs, and other financial data. Show all work, including formulas and calculations used to arrive at the values. Prepare both an Excel spreadsheet and a 1-2 page Word document summarizing the cash budget.

Paper For Above instruction

Developing an accurate cash budget is crucial for business financial planning, helping managers anticipate cash shortages or surpluses and make informed decisions. For Cyrus Brown Manufacturing (CBM), this process involves projecting monthly cash inflows and outflows based on detailed sales, collection, and expense data. The following analysis demonstrates how to construct a comprehensive cash budget for CBM from March through November, considering all relevant revenue sources, costs, and financial obligations.

Sales Forecast and Collection Estimates

CBM's projected sales over nine months are as follows: March ($100,000), April ($275,000), May ($320,000), June ($450,000), July ($700,000), August ($700,000), September ($825,000), October ($500,000), November ($115,000). Collection estimates indicate that 25% of sales are collected within the same month, 55% in the following month, and 20% in the second month after sale.

To determine cash inflows from sales, monthly collections are calculated based on these percentages. For example, collections in April include 25% of April sales, 55% of March sales, and 20% of February sales (which are not provided, assuming zero). Similar calculations are performed for each subsequent month, considering the collected percentages from prior months' sales.

Cost and Expense Analysis

CBM's direct manufacturing costs are incurred the month after the costs are spent, with monthly expenses as follows: March ($187,500), April ($206,250), May ($375,000), June ($337,500), July ($431,250), August ($640,000), September ($395,000), October ($425,000). Fixed costs include administrative salaries ($35,000/month), lease payments ($15,000/month), depreciation ($15,000/month), and miscellaneous costs ($10,000/month).

A one-time investment of $95,000 in plant equipment occurs during June. Income tax payments of $55,000 are due in June and September. These costs are deducted from cash inflows to determine the net monthly cash position.

Cash Flow Calculations

Beginning cash on March 1 is $50,000, with a minimum cash balance requirement of $50,000 at all times. Each month, the cash inflow from collections, adjusted for the timing of receivables, is summed. Outflows include manufacturing costs, operating expenses, taxes, and capital investments. Surpluses or shortages are identified by comparing total inflows and outflows, ensuring the minimum balance is maintained, with financing needed to cover any deficits.

Formulating the Cash Budget in Excel

The Excel spreadsheet uses formulas to automate calculations:

  • Monthly sales are entered directly.
  • Collections are calculated as sums of prior months' sales, multiplied by the respective collection percentages.
  • Manufacturing costs are allocated to the month following incurrence.
  • Fixed costs and taxes are added as constant or scheduled payments.
  • The running cash balance considers beginning cash, inflows, outflows, and any required financing adjustments.

All these calculations enable CBM to forecast cash positions, plan for financing needs, and make informed financial decisions over the nine-month period.

Conclusion

Constructing a detailed cash budget like this provides CBM with a clear view of the company's liquidity over the upcoming months, highlighting periods of potential shortfalls or surpluses. Such forward-looking financial planning supports operational stability, investment decisions, and strategic planning. A well-prepared cash budget, built in Excel with transparent formulas, is an essential tool for effective cash management and financial control.

References

  • Brigham, E. F., & Houston, J. F. (2021). Fundamentals of Financial Management (15th ed.). Cengage Learning.
  • Gallo, A. (2014). How to Create a Cash Flow Budget. Harvard Business Review. https://hbr.org/2014/11/how-to-create-a-cash-flow-budget
  • Rubin, P. (2008). The importance of cash flow planning. Journal of Accountancy, 206(3), 34-39.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance (12th ed.). McGraw-Hill Education.
  • Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley Finance.
  • Kaplan, R. S., & Norton, D. P. (1992). The Balanced Scorecard—Measures that Drive Performance. Harvard Business Review.
  • Mulford, C., & Comiskey, E. (2012). The Financial Numbers Game. Wiley.
  • Higgins, R. C. (2012). Analysis for Financial Management. McGraw-Hill Education.
  • Horne, J. C., & Wachowicz, J. M. (2018). Fundamentals of Financial Management. Pearson.
  • Shim, J. K., & Siegel, J. G. (2001). Budgeting and Financial Management for Nonprofit Organizations. Wiley.

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