Cash Budget For 9 Months Ending November 30

Cash Budget for 9 Months Ending 30th November

The document provides detailed financial data for Cyrus Brown Manufacturing (CBM) over a nine-month period, from March to November. It includes sales estimates, cash collection percentages, direct manufacturing costs, various disbursements, and additional financial commitments. The goal is to prepare a comprehensive cash budget for the period, factoring in all inflows and outflows, opening balances, borrowings, and repayments, ensuring a minimum cash balance is maintained throughout.

Paper For Above instruction

The preparation of a cash budget is an essential aspect of financial planning for manufacturing firms like Cyrus Brown Manufacturing (CBM). It offers insight into cash inflows and outflows, enabling the management to make informed decisions regarding financing, operational expenditures, and strategic investments. This cash budget encompasses sales receipts, collections from customers, manufacturing costs, administrative expenses, lease payments, capital expenditures such as plant purchases, tax obligations, and financing activities like borrowings and repayments.

Introduction

The purpose of this paper is to develop a detailed cash budget for CBM covering the period from March through November. The budget will incorporate expected cash collections from sales, disbursements related to manufacturing, administrative costs, lease payments, plant investments, tax expenses, and financing activities. A key objective is to maintain a minimum cash balance of $50,000 at all times to ensure liquidity and operational stability.

Sales and Cash Collection Analysis

CBM’s sales estimates range from $100,000 in March to a peak of $825,000 in September. The cash collection process is divided into three segments: 25% collected in the month of sale, 55% collected in the following month, and 20% in the second month following the sale. These percentages influence the timing and amount of cash inflows, which are critical in determining the liquidity position each month. For example, March sales of $100,000 will generate $25,000 in cash during March, while April sales of $275,000 will contribute $75,250 in April, and so forth.

Cash Disbursements

The main disbursements include direct manufacturing costs paid the month following production, administrative salaries, lease payments, and miscellaneous expenses. Direct manufacturing costs are projected to increase over the months, with a significant jump in August to $640,000, reflecting expanded production activities. Administrative salaries are steady at $35,000 per month, while miscellaneous costs are estimated at $10,000 monthly. Lease payments of $15,000 monthly are consistent, and a major plant purchase of $95,000 occurs in June. Income tax expenses of $55,000 are scheduled for June and September.

Cash Flow Calculation

To estimate each month’s cash position, inflows from collections are summed and compared against disbursements for manufacturing, administration, lease, taxes, plant investments, and miscellaneous costs. The beginning cash balance for March is $50,000, and the management’s policy is to maintain at least $50,000 in cash at all times. Any excess or deficiency will influence borrowing and repayment strategies.

Financing Activities

CBM plans to borrow an initial amount of $35,750 to bolster cash flows, with minimum cash balance requirements guiding borrowing decisions. The company has scheduled repayments of $89,250, likely corresponding to previous borrowings or financing arrangements. Proper management of these activities ensures liquidity and financial stability throughout the period.

Cash Budget Summary

By systematically projecting inflows and outflows, the cash budget reveals that CBM must carefully manage its resources, especially during months with high disbursements such as August and September, when manufacturing costs and tax expenses peak. The budget indicates the importance of strategic borrowing in months where inflows may not cover outflows, while repayments reduce the overall debt burden over time, supporting long-term financial health.

Conclusion

In conclusion, the detailed cash budget developed for Cyrus Brown Manufacturing offers vital insights into the company’s liquidity position from March to November. Ensuring a minimum cash balance, managing borrowing cycles, and controlling expenditures are critical to sustaining operational efficiency. This proactive financial management enables CBM to meet its obligations, invest in growth opportunities, and maintain financial stability despite fluctuating sales and expenses.

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