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A cash budget helps an organization plan and control the movement of cash into and out of the company. It is important for an organization to have a good understanding of its cash needs in order to identify instances of cash idleness or shortage. Cash on hand allows the organization to make commitments to various stakeholders, including employees and suppliers. Idle cash represents missed opportunities to reinvest into the organization and to return value to shareholders.
In this Application, you will use the information on cash budgets outlined in the Resources to prepare a cash budget for Gladiator Robotics given the data provided in the scenario below.
You will create and use an Excel spreadsheet for your calculations for the problems below, and the spreadsheet you develop is what you submit for the Application.
section includes tutorials for those who might need help in designing and using an Excel spreadsheet.
Read the information below and complete Parts I, II and III
The board of directors of Gladiator Robotics is considering whether or not to donate to a national robotics convention for high school students interested in technology and engineering. The company needs you to prepare a monthly cash budget to determine the available cash reserves for January, February, and March. Relevant data appear below.
All sales are on account. Collections are expected to be 60% in the month following the sale, 25% in the second month following the sale, and 10% in the third month following the sale. Five percent are deemed to be uncollectible.The company sold equipment in February for $20,000 and received a dividend on investments of $4,000 in March.Cash on hand as of January 1st is $14,000.Material purchases are as follows:
Material purchases are paid 50% in the month purchased and the remainder in the following month.Other disbursements are paid in the month incurred.
The company wants to maintain a cash balance at the end of each month of at least $10,000. It has a $250,000 line of credit at the bank and will borrow from the bank in order to maintain this balance.Part I: Prepare a monthly cash budget for January, February, and March following the template that is provided to complete. Part II: Analyze the cash budget and make recommendations to the board of directors of Gladiator Robotics regarding your findings. Be specific regarding possible causes and remedies (if applicable).
Part III: What if any concerns do you have about the ability to make the donation? Also, do you have any concerns about cash on hand which might impact variable HR expenses such as recruitment costs or other commitments to employees including staffing, development or rewards? Be specific.
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6140 Week 7 assignment template October(actual) November(actual) December(actual) January February March Expected sales $300,000 $325,000 $450,000 $310,000 $350,000 $400,000 Cash receipts: Cash sales 0% 0 0 0 Collection from sales: One month ago 60% 270000 186000 Two months ago 25% 81250 Three months ago 10% 30000 Bad debts 5% 100% 381250 Other cash receipts 20000 4000 Beginning of month cash 14000 10750 10000 Total cash available 395250 Cash disbursements: Materials 92500 Labor and wages Selling costs G & A costs Income taxes Capital equipment 50000 Interest expense Total cash disbursements 384500 Ending cash balance (deficiency)before borrowings/ (repayments)or (investments)/redemptions 10750 Bank borrowings/(repayments)(investments)/redemptions Ending cash balance (deficiency) 10750