Fin 3150 assignment - preparing and analyzing a cash budget

Assignment - Preparing and analyzing a cash budget

Select assumptions for the following values that fall between the minimum and maximum indicated.

 Assumption Minimum Maximum a. Sales in month 1 \$150,000 \$250,000 b. Increase/decrease in sales month 2 -\$5,000 \$10,000 c. Increase/decrease in sales month 3 -\$5,000 \$10,000 d. Increase/decrease in sales month 4 \$40,000 \$60,000 e. Increase/decrease in sales month 5 \$10,000 \$30,000 f. Increase/decrease in sales month 6 (compared to month 3) -\$5,000 \$10,000 g. Portion of sales that are cash sales or are collected in month of sale 25% 35% h. Portion of sales for which receivables are collected in the first month following the month of sale 40% 50% i. Fixed monthly expenses \$60,000 \$70,000 j. Variable monthly expenses (percent of following month's sales) 60% 70% k. Portion of variable expenses that are paid in cash or in month of purchase 35% 45% l. Portion of variable expenses that are paid in the first month following the month of purchase 40% 50% m. Interest payment in months 2 and 5 \$20,000 \$30,000 n. Dividend payment in months 3 and 6 \$10,000 \$20,000 o. Semi-annual insurance premium payment in month 4 \$15,000 \$35,000

Use the following assumptions, in addition to those selected above:

Total accounts receivable from sales prior to month 1 collected in month 1: \$140000

Total accounts receivable from sales prior to month 1 collected in month 2: \$50000

Total accounts payable from purchases prior to month 1 paid in month 1: \$45000

Total accounts payable from purchases prior to month 1 paid in month 2: \$11250

Expected sales in month 7: \$200,000

Beginning cash balance for month 1: \$5000

Assume also

1. all non-cash sales not collected in either the month of sale or the following month are collected in the second month after the sale,

2. all variable costs not paid in cash or in the month after purchase or the following month are paid during the second month after purchase.

Using the assumptions above, prepare a six-month cash budget for the company.

Your cash budget should include the following lines with appropriate calculation of amounts for each of the six months:

Sales

Cash sales

Accounts receivable collected from the previous month's sales

Accounts receivable collected from sales two months ago

Total cash inflow

Fixed expenses

Variable expenses

Variable expenses paid in month incurred

Accounts payable paid in month following purchase

Accounts payable paid in second month after purchase

Interest payments

Insurance payments

Dividend payments

Total cash outflow

Net cash flow for the month

Beginning cash balance

Ending cash balance

Explain how the information in the cash budget helps the company's financial manager in planning for the next six months.

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