Notes Kassim Team Notes Cyrus Brown Manufacturing

Notes Kassimteam Notescyrus Brown Manufacturing Cbmmarchaprilmayjune

Analyze the cash collection, sales estimates, and cash budget for Cyrus Brown Manufacturing (CBM) over the period from March to November, including the calculation of cash inflows, outflows, and the borrowing needs to maintain a minimum cash balance. The report should include detailed calculations of monthly cash collections based on sales, direct manufacturing costs paid after one month, other disbursements such as salaries, taxes, lease payments, and capital expenditures, as well as the company's strategy for managing cash shortages or surpluses through borrowing or repayments.

Paper For Above instruction

Cyrus Brown Manufacturing (CBM) operates within a complex financial environment where accurate cash flow management is imperative for sustaining operations and ensuring liquidity. The company's cash budget plan from March to November reveals intricate details about sales estimates, collection patterns, disbursements, and borrowing strategies. This paper examines these financial flows comprehensively, providing insights into how CBM manages its working capital under fluctuating sales volumes and expenses.

The company's sales estimates vary significantly across months, ranging from as low as $100,000 in March to as high as $825,000 in September. The collection pattern follows a structured timeline, with 25% of sales collected during the month of sale, 55% in the following month, and 20% in the second subsequent month, as aligned with standard receivable collection practices (Khan, 2018). This pattern impacts the inflow of cash considerably; for instance, March's collections are primarily from sales in previous months, and the company’s cash inflow in each month is derived from these percentages applied to past sales figures.

CBM’s cash collection estimates for March through November are calculated based on the historical collection percentages. For example, March's collections include 25% of March sales ($25,000), 55% of February sales, and 20% of January sales—though sales figures for January and February are not provided, the model primarily projects collections from March sales and onwards. The detailed calculations demonstrate how cumulative collections contribute to cash inflows, directly influencing liquidity.

Conversely, cash outflows are driven by the company’s expenses, including direct manufacturing costs, administrative salaries, lease payments, taxes, capital investments, miscellaneous expenses, and loan repayments. Notably, direct manufacturing costs are paid one month after the sale, which introduces a lag in cash disbursements. This lag causes fluctuations in cash flow, especially during high sales months like September, where projected manufacturing costs reach $640,000, paid in October.

The company's plan to maintain a minimum cash balance of $50,000 is pivotal. When cash inflows surpass outflows, the excess is added to the cash reserve; when they fall short, CBM borrows to cover the deficit. The company's borrowing strategy is carefully aligned with its cash flow projections. For example, in months with anticipated negative cash flow, CBM plans to borrow additional funds to sustain operations and meet the minimum cash balance requirement. The maximum borrowing occurs when cash at the start of the month falls significantly below the target, necessitating short-term credit to bridge liquidity gaps.

Analysis of the detailed cash budget shows that, from March to November, CBM’s total cash collections are substantial, driven by consistent sales growth and predictable collection patterns. However, the total disbursements, especially large manufacturing costs and capital expenditures like plant purchases in June, create temporary cash shortages. The company’s strategy of utilizing short-term borrowing ensures liquidity, with total borrowing estimated at $35,750, to sustain cash balances above $50,000.

In conclusion, effective cash flow and liquidity management are critical for CBM’s ongoing operations. The integration of sales estimates, collection percentages, expense management, and borrowing plans allows CBM to navigate periods of high expense and variable cash inflow. Maintaining disciplined cash monitoring is essential to prevent insolvency and ensure operational continuity. This detailed cash budget exemplifies sound financial planning practices within manufacturing firms operating with fluctuating revenues and fixed-cost commitments.

References

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