Cash Budget Control Movement

Cash Budgets

A cash budget helps a company plan and control the movement of cash into and out of the company. It is important for a company to have a good understanding of its cash needs in order to identify instances of cash idleness or shortage.

In this Application, you will use the information on cash budgets outlined in the Resources to prepare a cash budget for Gladiator Robotics based on the data provided in the scenario below.

You will set up and use an Excel spreadsheet for all your calculations for the problems below, and the spreadsheet you develop should be what you turn in for the Application. Note: The Resources section includes tutorials for those who might need help in designing and using an Excel spreadsheet. There is also a PDF that demonstrates how to calculate cash collections from sales.

Gladiator Robotics
Read the information below and complete Parts I and II

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.

October $300,000
actual

November $325,000
actual

December $450,000
actual

January $310,000

February $350,000

March $400,000

Sales
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:

October $80,000
November $85,000
December $105,000
January $80,000
February $88,000
March $92,000

Material purchases are paid 50% in the month purchased and the remainder in the following month.

Other disbursements are paid in the month incurred.

January February March
Labor and wages 150,000 185,000 215,000

Selling costs 62,000 68,000 78,000

G & A costs 30,000 31,000 38,000

Income taxes 32,000

Capital equipment 50,000

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 on page 261 in the textbook.

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).