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.
In this Application, you will use the information on cash budgets outlined in the Resources to prepare a cash budget for Gladiator Robotics given the data provided in the scenario below.
You will create and use an Excel spreadsheet for your calculations for the problems below, and the spreadsheet you develop is what you submit for the Application. Note: The Resources section includes tutorials for those who might need help in designing and using an Excel spreadsheet.
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
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 following the template that is provided to complete.
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.
