Prepare a Schedule of Collections and Payments for the six month period beginning in March, using the template provided and the data above.

Assignment 1: LASA 2—Cash Management and Budgeting

The new owner of Bob’s Boats, Bob, just purchased the business and discovered that the prior owner did not have a plan for managing the current assets of the company.  Bob has decided that the place to start is with a cash budget, using the template he used in his prior position.

Click here to download the Excel template for this assignment.

Bob has requested that you to complete the cash budget given the data that he has already retrieved from the company’s records and from his own analysis.

Table-1:

Sales Forecast for the next 9 Months
Month Sales
January  $ 162,000.00
February  $ 168,000.00
March  $ 324,000.00
April  $ 485,000.00
May  $ 648,000.00
 June  $ 325,000.00
July  $ 325,000.00
August  $   80,000.00
September  $ 162,000.00

Collections on receivables have historically been collected as follows and this pattern is expected to continue:

  • 12% in the Month of Sale
  • 60% in the month following the Sale
  • 28% in the Second Month after the Sale

Bob pays for the labor and materials in the month after they are incurred.  Bob has also compiled the following information on expenses for the upcoming nine month period:

Table-2:

Month Labor and Materials Expense Administrative Salaries Depreciation Charges Income Taxes Lease Payments Miscellaneous Expenses
January  $        80,000.00  $         25,000.00  $     34,500.00  $     8,500.00  $       3,000.00
February  $        80,000.00  $         25,000.00  $     34,500.00  $     8,500.00  $       3,000.00
March  $      114,000.00  $         25,000.00  $     34,500.00  $     8,500.00  $       3,000.00
April  $      794,000.00  $         25,000.00  $     34,500.00  $     8,500.00  $       3,000.00
May  $      275,000.00  $         25,000.00  $     34,500.00  $   58,500.00  $     8,500.00  $       3,000.00
 June  $      210,500.00  $         25,000.00  $     34,500.00  $     8,500.00  $       3,000.00
July  $      146,000.00  $         25,000.00  $     34,500.00  $     8,500.00  $       3,000.00
August  $        80,000.00  $         25,000.00  $     34,500.00  $   58,500.00  $     8,500.00  $       3,000.00
September  $        81,000.00  $         25,000.00  $     34,500.00  $     8,500.00  $       3,000.00

Bob has also identified a cash payment of $175,000 upon completion of a new boat dock in July.  As of March 1st, the company now has $125,000 in cash on hand and would like to maintain a minimum cash balance of $85,000 at all times.

Required:

  1. Prepare a Schedule of Collections and Payments for the six month period beginning in March, using the template provided and the data above.
  2. Prepare a Schedule of Cash Gains and Losses by month for the six month period beginning in March, using the template provided and the data above.
  3. Prepare a Schedule of Cash Surplus or Shortages by month for the six month period beginning in March, using the template provided and the data above.
  4. Prepare a schedule of Net Cash Flow by month for the six month period beginning in March, using the template provided and the data above indicating the timing and amounts that must be borrowed or the amounts that can be re-invested or used in the firm.
  5. Based on the information in the reports you constructed above would you recommend any changes in the credit policy of the firm?  If so, what would they be?  Explain your answers.

Use the following file naming convention: LastnameFirstInitial_M5_A1.doc. For example, if your name is John Smith, your document will be named SmithJ_M5_A1.doc.

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