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# Cyrus Brown Manufacturing: Monthly Cash Budget

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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 - Cyrus Brown Manufacturing (CBM). He has estimated the following sales forecast for CBM over the next nine months:

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 estimates 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 like raw materials and labor are made during the month that follows the one in which such costs have been incurred. These costs are estimated as follows:

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 will approximately amount to \$35,000 a month; lease payments around \$15,000 a month; depreciation charges, 15,000 a month; a one-time new plant investment in the amount of \$95,000 is expected to be incurred and paid in June; income tax payments estimated to be around \$ 55,000 will be due in both June and September; and finally, miscellaneous costs are estimated to be around \$10,000 a month. Cash on hand on March 1 will be around \$50,000; and a minimum cash balance of \$50,000 shall be on hand at all times.

a. Prepare a monthly cash budget for Cyrus Brown Manufacturing for the nine month period, March through November.

b. Based on your findings in part b, will the company need any outside financing?

c. What is the minimum line of credit that CBM will need?

d. What do you think of CBM's cash position during the budget period? Do you see any concerns for the company in this regard?

e. If you were a bank manager would you want CBM as your client? Why or why not?

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#### Solution Preview

a. Prepare a monthly cash budget for Cyrus Brown Manufacturing for the nine month period, March through November.

The necessary calculations and the cash budget are in the attached Excel file.

b. Based on your findings in part b, will the company need any outside financing?

Based on part a, there is a need for external financing since the cash inflows are less than the cash outflows in March, April, and ...

#### Solution Summary

This solution provides guidelines on creating a monthly cash budget for a new company and then discusses the type of financing the company will require based on the budget.

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