Cyrus Brown Manufacturing has estimated the following sales forecast over next 9 mo.:
Collection estimates regarding the forecast sales:
payment collection within the month of sale=25%;
payment collection the month following sales=55%;
payment collection the second month following sales=20%.
Payments for direct manufacturing costs like raw materials are made during the month that follows the one in which such costs have been incurred as follows:
Additional financial info:
Administration salaries will approximately amount to $35,000 a month;
lease payments around $15,000 a month;
Depreciation-$15,000 a month;
a one-time plant investment 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 June and September;
miscellaneous $10,000 a month.
Cash on hand March 1st will be around $50,000 and a minimum cash balance of $50,000 shall be on hand at all times. Show all work, formulas and calculations. Based on information:
1) will the company need any outside financing;
2) what is the minimum line of credit will CBM need?
3)what is CBM's cash position during the budget period?Is there any concerns for the family in this regard?If you were a bank manager would you want CBM as your client? Why or Why not?
Will the company need any outside financing?
Yes, they need to borrow in five of the nine months per the cash budget (yellow cells).
What is the minimum line of credit that CBM will need?
The largest amount of borrowings during the year, without considering interest payments, is $415,250 (pink cell). So, the line should be at least that plus perhaps a cushion because ...
Your tutorial discusses the cash flow analysis from Mar to Nov, including the insights about borrowings and repayments and whether a bank might like a client like this firm. Your cash budget is in excel (click in cells to see computations).