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    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?

    To receive full credit on this assignment, please show all work, including formulae and calculations used to arrive at financial values.

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    Solution Preview

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

    Please see the attached file.

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

    Yes, there is a cash shortfall and the company needs outside financing

    c. What is the minimum line of credit that CBM ...

    Solution Summary

    The solution explains how to prepare a cash budget for Cyrus Brown Manufacturing

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