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.

What do you think of CBM?s cash position during the budget period? Do
you see any concerns for the company in this regard?

thank you

ryan

ryan...

Assuming I'm interpreting correctly, and that the minimum cash
balance which "shall be on hand at all times" comes from the 
profits, and doesn't just refresh itself from some unknown
source, CBM will have a problem in April.

Income in March is only 10% of $250,000 = $25,000.
Cash on hand is $50,000, for a total of $75,000.

Expenses in March, and every month thereafter, are:
Salaries:      $35,000
Lease:         $15,000
Depreciation:  $15,000
Miscellaneous: $10,000
Total:         $75,000

So, in the first month, the cash onhand is gone.


In April, things get worse.

Income:
10% of April sales:  $27,500
65% of March sales:  $162,500
Cash on hand         $0
Total:               $190,000

Expenses:
March costs:         -$187,500
Monthly, as noted:   -$75,000
Total:               -$262,500

Which leaves the company $72,500 in the hole.
Even if the cash on hand somehow replenished itself,
the company would still be $22,500 in the hole.
Assuming that's not the case, the company wouldn't
see a positive cash flow until August, at which 
point they'd end the month with $67,500 on hand.


I created a simple spreadsheet to clarify my work:
http://members.cox.net/sublime_1/budgetQ.xls


My work is based on the assumption that I understood
the premises correctly. If you believe this is not the
case, please clarify the premises.

Please do not rate this answer until you are satisfied that  
the answer cannot be improved upon by way of a dialog  
established through the "Request for Clarification" process. 

sublime1-ga

dang your quick, excellent responce!

thank you ..time for sunday night football

ryan

ryan...

Thanks very much for the rating and the tip!
Enjoy the game!

sublime1-ga

Ryan, Sublime1 --

Depreciation is a non-cash expense and shouldn't be included in a cash
flow statement.  If you were doing an income statement, it would be
there, but not in a cash flow statement --
http://www.investopedia.com/university/fundamentalanalysis/cashflow.asp

Best regards,

Omnivorous-GA