Prepare Cash Budget And Make Recommendations Based On It

Question

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
actual

November
actual

December
actual

January

February

March

Sales

$300,000

$325,000

$450,000

$310,000

$350,000

$400,000

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

November

December

January

February

March

$80,000

$85,000

$105,000

$80,000

$88,000

$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.

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

Part III: What if any concerns do you have about the ability to make the donation? Also, do you have any concerns about cash on hand which might impact variable HR expenses such as recruitment costs or other commitments to employees including staffing, development or rewards? Be specific.

 

Summary

The question belongs to Accounting and it discusses about preparing a cash budget for an organization and making recommendations based on the review of the cash budget.

Total Word Count 554

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