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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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This explains the concepts and steps of prepration of cash budget

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THIS PROJECT DEALS WITH PREPRATION OF CASH BUDGET

Preparation of a Cash Budget

Overview

Just as you would not purchase new furniture for your home without enough cash, or at least a solid plan to cover a personal loan from your bank, your business needs the same careful handling of its expenditures. All businesses, no matter what type or size, need to properly develop a plan for their expected cash intake and spending. This plan is commonly known as a cash budget.
ESSENTIALS OF CASH FLOW
If a company reports earnings of $1 billion, does this mean it has this amount of cash in the bank? Not necessarily. Financial statements are based on accrual accounting, which takes into account non-cash items. It does this in an effort to best reflect the financial health of a company. However, accrual accounting may create accounting noise, which sometimes needs to be tuned out so that it's clear how much actual cash a company is generating.
What Is Cash Flow?
Business is all about trade, the exchange of value between two or more parties, and cash is the asset needed for participation in the economic system (see What Is Money?). For this reason - while some industries are more cash intensive than others are - no business can survive in the long run without generating positive cash flow per share for its shareholders. To have a positive cash flow, the company's long-term cash inflows need to exceed its long-term cash outflows.

An outflow of cash occurs when a company transfers funds to another party (either physically ...

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