A cash budget helps an organization plan and control the movement of cash into and out of the company.

A cash budget helps an organization plan and control the movement of cash into and out of the company. It is important for an organization to have a good understanding of its cash needs in order to identify instances of cash idleness or shortage. Cash on hand allows the organization to make commitments to various stakeholders, including employees and suppliers. Idle cash represents missed opportunities to reinvest into the organization and to return value to shareholders.

You will create and use an Excel spreadsheet for your calculations for the problems below.

Gladiator Robotics
Read the information below and complete Parts I, II and III

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
actualNovember
actualDecember
actualJanuaryFebruaryMarchSales$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 1^st is $14,000.

Material purchases are as follows:

OctoberNovemberDecemberJanuaryFebruaryMarch$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.

JanuaryFebruaryMarchLabor and wages150,000185,000215,000Selling costs62,00068,00078,000G & A costs30,00031,00038,000Income taxes 32,000Capital equipment50,000

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 using the attached template.

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 (if applicable).

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.

October
(actual)

November
(actual)

December
(actual)

January

February

March

$300,000

$325,000

$450,000

$310,000

$350,000

$400,000

0%

0

0

0

One month ago

60%

270000

186000

Two months ago

25%

81250

Three months ago

10%

30000

Bad debts

5%

Expected sales
Cash receipts:
Cash sales
Collection from sales:

100%
Other cash receipts

381250

Beginning of month cash

14000

Total cash available

395250

Cash disbursements:
Materials

92500

Labor and wages
Selling costs
G & A costs
Income taxes
Capital equipment
Interest expense
Total cash disbursements

384500

Ending cash balance (deficiency)
before borrowings/ (repayments)
or (investments)/redemptions

10750

Bank borrowings/(repayments)
(investments)/redemptions

0

Ending cash balance (deficiency)

10750