Financial Planning and Growth

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1._cash_budgeting_scenario.docx

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Title

ABC/123 Version X

Cash Budgeting Problem

FIN/375 Version 3

University of Phoenix Material

CASH BUDGETING PROBLEM

Kent Resom, a recent University of Phoenix graduate with huge potential, has accepted a position as an entry-level analyst with Builders R Us Manufacturing Company. The president of the company, U. R. Wright, has requested Kent to provide him with a cash flow analysis for the period of April 30 to June 30, which happens to be the end of the current fiscal year. The following information is available:

All sales are credit sales, with 20% of sales collected in the month of sales, 60% collected in the month following sales, 15% collected in the second month following the sale, and the remaining 5% written off as bad debt losses in the sixth month following the sale. Raw materials purchased each month are 75% of the next month’s sales. Payment for raw materials is made during the month after the purchase. The company is required to maintain a minimum balance of $5,000 in the checking account, and the balance on April 1st is $6,000. Rent, insurance, and other expenses are $1,000 per month.

Sales and wage data are as follows:

ACTUAL

	Sales	Wages
February	$ 30,000	$ 3,000
March	$ 30,000	$ 3,000

ESTIMATED

	Sales	Wages
April	$ 30,000	$ 3,000
May	$ 40,000	$ 4,000
June	$ 50,000	$ 5,000
July	$ 60,000	$ 6,000
August	$ 50,000	$ 5,000
September	$ 40,000	$ 4,000

Prepare a cash budget for the period April 30 through June 30. For any month during which a cash shortage is indicated, assume that the Friendly Online National Bank will make funds available. Use the budget worksheet provided to solve the problem.