Problem:
To avoid any uncertainty regarding his business financing needs at the time when such needs may arise, Cyrus Brown wants to develop a cash budget for his latest venture. His forecast for the next nine months are as follows:
March 2004 $250,000 April 275,000 May 320,000 June 450,000 July 575,000 August 700,000 September 825,000 October 350,000 November 285,000.
He has also gathered the following collection regarding the forecast sales, Collection within the month of sale 10%; Collection the month following sales,65% and collection the second month following sales,25%. Payments for direct manufacturing costs raw materials and labor are made during the month that follows the one in which such costs have been incurred. These are the estimated costs;
March 2004 $187,500 April 206,250 May 240,000 June 337,500 July 431,250 August 525,000 September 618,750 October 262,500;
Administrative salaries $35,000 a month. Lease $15,000 a month. Depreciation charges 15,000 a month. One time new plant investment 95,000 expected to be incurred and paid in June Income tax payment 55,000 will be due in June and September Miscellaneous costs 10,000 a month. Cash on hand on March 1 will be 50,000 and minimum balance of 50,000 shall be on hand at all times.
Q1. Prepare a monthly cash budget for Cyrus Brown for the nine months period March through November
Q2. Based on your findings, will the company ned any outside financing?
Q3. What is the minimum line of credit that cbm will need.
Q4. What do you think of the company cash position during the budget period. Do you see any concerns for the company in this regard.
Q5. If you were a bank Manager would you like the cmpany to be your client. Why or why not?