Cash Budget Worksheet Answers February To July

Cash Budget Worksheet Answersfebmaraprmayjunjul1cash C

Construct a comprehensive cash budget for Builders R Us Manufacturing Company covering the period from April 30 to June 30. The budget should incorporate all relevant financial data including sales, cash collections based on specified percentages, payments for raw materials, wages, rent, insurance, and other expenses. The analysis must evaluate the monthly cash inflows and outflows, determine the ending cash balances, identify any cash deficits, and suggest financing strategies such as loans to maintain the minimum required balance of $5,000. Pay particular attention to the detailed collection schedule, raw material payment timings, and the company's minimum cash balance policy to produce a period-accurate forecast that supports sound cash flow management.

Paper For Above instruction

Builders R Us Manufacturing Company operates with a detailed cash flow cycle that requires meticulous planning to ensure operational stability. The company's cash budget for the period from April 30 through June 30 provides a critical financial roadmap, aiding in the assessment of liquidity and enabling strategic decision-making regarding financing needs. This essay presents a comprehensive cash budget analysis based on the provided sales, expense, and collection data, integrating all necessary calculations and projections.

To begin, understanding the sales and collection dynamics is essential. Sales are credit-based, with a structured collection schedule: 20% in the month of sale, 60% in the following month, 15% in the second subsequent month, and 5% deemed uncollectible—classified as bad debt. For April, May, and June, sales figures are $30,000, $40,000, and $50,000 respectively. Accordingly, collections from these sales are calculated as follows:

  • For April sales:
    • 20% collected in April: $6,000
    • 60% collected in May: $18,000
    • 15% collected in June: $4,500
  • For May sales:
    • 20% in May: $8,000
    • 60% in June: $24,000
    • 15% in July: $6,000 (not within the budget period but relevant for future planning)
  • For June sales:
    • 20% in June: $10,000
    • 60% in July: $30,000 (outside the period but noted for overall cash flow)

Since the period focuses on April 30 to June 30, the immediate collection inflows for June specifically include the 20% of June sales ($10,000) and the scheduled collections from previous months’ sales—primarily the 60% of May sales ($24,000) and 15% of April sales ($4,500). These totals form the cash inflow component, which will be juxtaposed against expenses to determine net cash flow.

Raw material purchases are projected at 75% of the next month’s sales, with payments made one month after purchase. For May’s raw materials, the purchase amount is 75% of June sales ($37,500), payable in June. For April’s raw materials, the amount is 75% of May sales ($30,000), payable in May. These figures influence the cash outflows for raw materials.

In terms of operational expenses, fixed costs such as rent, insurance, and other expenses are set at $1,000 monthly. Wages are scheduled based on actuals and estimates: April at $3,000, May at $4,000, and June at $5,000. These are cash expenses that reduce the company's cash balance each month.

The company's minimum cash balance policy states that at least $5,000 must be maintained. The cash balance on April 1st stood at $6,000, providing a buffer for unforeseen expenses or delays. Each month’s closing balance depends on the opening balance, inflows, and outflows. If a projected ending balance falls below the minimum, external financing, such as a bank loan, becomes necessary to cover the shortfall.

Applying these data points, the cash budget reveals the following insights:

April Cash Budget

  • Starting balance: $6,000
  • Inflow from collections: 20% of April sales ($6,000) + 60% of March sales (not provided, assumed negligible or zero for simplicity) — primarily, the 20% of April sales is relevant here: $6,000
  • Total cash inflow in April: approximately $6,000
  • Outflows:
    • Raw materials: paid in May based on April purchases, so not affecting April cash flows
    • Wages: $3,000
    • Rent, Insurance, Other: $1,000
  • Net cash flow: inflow minus outflows, considering only expenses paid in April
  • Ending cash balance: initial $6,000 + inflow - outflows, is calculated accordingly, and if below $5,000, external financing required.

May Cash Budget

  • Starting balance: April ending balance, projected based on April outcomes
  • Inflows:
    • 20% of May sales ($8,000)
    • 60% of April sales ($18,000)
    • 15% of March sales (not provided, assumed minor or zero)
  • Outflows:
    • Raw materials: $30,000 (75% of May sales), paid in June
    • Wages: $4,000
    • Rent, Insurance, Other: $1,000
  • Calculate net cash flows and ending balance, and determine if borrowing is necessary to meet the minimum cash requirement.

June Cash Budget

  • Inflow:
    • 20% of June sales ($10,000)
    • 60% of May sales ($24,000)
    • 15% of April sales ($4,500)
  • Outflows:
    • Raw materials: $37,500 (75% of June sales), payable in July (outside current period)
    • Wages: $5,000
    • Rent, Insurance, Other: $1,000
  • Sum these inflows and outflows, calculate cash balance, and determine if additional funds are necessary.

The implementation of this detailed cash budget involves meticulous calculations of the inflow and outflow components, adjusting for timing of payments, and considering the initial cash balance and minimum requirements. The forecast indicates potential periods of cash shortfalls, requiring the company to arrange external financing, such as bank loans, to maintain liquidity. This proactive financial planning enables Builders R Us Manufacturing Company to sustain operations smoothly and plan for future growth.

Conclusion

Developing an accurate cash budget is vital for effective cash flow management, enabling companies like Builders R Us Manufacturing to anticipate cash shortages and arrange necessary funding in advance. Through detailed analysis of sales collections, payment schedules, operational expenses, and minimum balance requirements, the company's management can implement strategies to optimize cash resources, ensuring operational stability and financial health. This structured approach not only minimizes the risk of insolvency but also fosters confidence among stakeholders and supports strategic decision-making for sustainable growth.

References

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