Budgeting Project Unit 3 Assignment Details Good cash management is impossible without an analysis of the cash collections and cash disbursements of a comp

Assignment Details

Good cash management is impossible without an analysis of the cash collections and cash disbursements of a company. Cash budgets provide a gauge for determining credit, disbursement, and discount policies. Cash budgets are effective control devices for monitoring cash and determining financing requirements.

Cash budgets are essential to all small businesses. In this assignment, you are required to do the following:

  • Develop a spreadsheet with a cash budget with lagging collections
  • Determine the net cash flows for the year
  • Forecast the cumulative dollar amount of the external financing required for the year

You are also required to prepare a 3-page analysis of the results of your cash budget.

Middletown Construction, Inc. has estimated the following sales forecast over the next 12 months (they close in the winter):

January$0February$0March$275,000April$275,000May$312,000June$417,000July$714,000August$611,000September$827,000October$500,000November$116,000December$0

The company also gathered the following collection estimates regarding the forecast sales:

  • Payment collection within the month of sale = 20%
  • Payment collection the month following sales = 60%
  • Payment collection the second month following sales = 20%

Payments for raw materials and labor costs are paid the month after the purchase and are estimated as follows:

March$220,000April$240,000May$225,000June$287,000July$350,000August$415,000September$242,000October$214,000November$222,000

Additional financial information is as follows:

  • Administrative salaries will approximately amount to $30,000 a month.
  • Lease payments are around $10,000 a month.
  • A one-time new plant investment for $23,000 is expected to incur and be paid in June.
  • Income tax payments estimated to be around $50,000 will be due in both June and September.
  • Miscellaneous costs are estimated to be around $5,000 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.

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

  • Prepare a monthly cash budget for Middletown Construction, Inc. for the 12-month period of January through December.
  • Use Excel to prepare the monthly cash budget with the use of this template.

Based on your cash budget findings, answer the following questions in a 3-page analysis:

  • Will the company need any outside financing?
  • When is the line of credit the highest for MCI will need?
  • If you were a bank manager, would you want MCI as your client? Why or why not?

Sheet1

FINA425 UNIT 3 INDIVIDUAL ASSIGNMENT TEMPLATE
Student Name: ________________________
Date submitted: ________________________
Middletown Construction, Inc.
JANUARYFEBRUARYMARCHAPRILMAYJUNEJULYAUGUSTSEPTEMBEROCTOBERNOVEMBERDECEMBER
SALES FORECAST00275,000275,000312,000417,000714,000611,000827,000500,000116,0000
CASH COLLECTIONS
MONTH OF SALE20%
FIRST MONTH AFTER SALE60%
SECOND MONTH AFTER SALE20%
TOTAL CASH INFLOWS$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0
JANUARYFEBRUARYMARCHAPRILMAYJUNEJULYAUGUSTSEPTEMBEROCTOBERNOVEMBERDECEMBER
DIRECT MANUFACTURING COSTS– 0– 0220,000240,000225,000287,000350,000415,000242,000214,000222,000– 0
PAYMENTS FOR RAW MATERIALS ARE
MANUFACTURING COST PAYMENTS
ADMINISTRATIVE SALARIES
LEASE PAYMENTS
MISCELLANEOUS
TAX PAYMENTS
NEW PLANT COSTS
TOTAL CASH OUTFLOWS$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0
MONTHLY NET CASH GAIN OR LOSS$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0$ – 0
CUMULATIVE NET CASH GAIN OR LOSS (YTD)$ – 0$ – 0$ – 0
JANUARYFEBRUARYMARCHAPRILMAYJUNEJULYAUGUSTSEPTEMBEROCTOBERNOVEMBERDECEMBER
CASH FLOW SUMMARY
1. Cash balance at start of month
2. Net cash gain (loss) during month
3. Cash bal. at end of month (before financing)
4. Minimum cash balance desired
5. Surplus cash (OR) Deficit cash (Line 3 – Line 4)
EXTERNAL FINANCING SUMMARY
6. External financing balance – start of month
7. New financing reqd (negative of Line 5) (if deficit!)
8. Financing repayments (if surplus!)
9. Ext financing balance – end of month
10.Cash bal at end of mo (Line3 + Line7 + Line8)
Developed by Patrice Nybro June 22, 2020

Sheet2

Sheet3

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