Question

CASH FLOW BUDGETING PROBLEMS -

COMPANY A -

Company A is experiencing rapid growth due to the popularity of its recent hardware release. Current sales of $100,000, which increased from $80,000 the previous month, are expected to grow at a 30 percent rate. Cost of sales are a stable 70 percent of sales revenue, yielding a 30 percent gross profit. Company A sales are 15 percent for cash with the remaining 85 percent collected the following month. Inventory-on-hand is maintained at a level to support the following month's sales. Inventory is paid for at the time of receipt. Ivy began the period with a cash balance of $65,000.

(a) For the current month and following three months, determine Company A's (revenue, cost of sales, etc).: (fill in the chart below)(PLEASE INCLUDE FORMULAS ON HOW PROBLEM IS SOLVED)

COMPANY A	Previous Month	Current Month	Month 1	Month 2	Month 3	Month 4
Revenue	?	?	?	?	?	?
Cost of sales	?	?	?	?	?	?
Gross profit	?	?	?	?	?	?
Accounts receivable	?	?	?	?	?	?
Inventory	?	?	?	?	?	?
Cash collections	?	?	?	?	?	?
Cash disbursements	?	?	?	?	?	?

(b) Is Company A gross sprofit increasing or declining?

(c) Is Company A cash flow increasing or declining?

(d) What is Company A cash balance at the end of the four-month period?

CASH FLOW BUDGETING PROBLEMS

COMPANY B -

Company B is experiencing rapid growth due to the popularity of its recent clothing line release. Current sales of $250,000, which increased from $190,000 the previous month, are expected to grow at a 20 percent rate. Cost of sales are a stable 35 percent of sales revenue, yielding a 65 percent gross profit. Company B sales are 30 percent for cash with the remaining 70 percent collected the following month. Inventory-on-hand is maintained at a level to support the following two months sales. Inventory is paid for at the time of receipt. Company B began the period with a cash balance of $70,000.

(e) For the current month and following three months, determine Company B (revenue, cost of sales, etc.): (fill in the chart below)(PLEASE INCLUDE FORMULAS ON HOW PROBLEM IS SOLVED

COMPANY B	Previous Month	Current Month	Month 1	Month 2	Month 3	Month 4
Revenue	?	?	?	?	?	?
Cost of sales	?	?	?	?	?	?
Gross profit	?	?	?	?	?	?
Accounts receivable	?	?	?	?	?	?
Inventory	?	?	?	?	?	?
Cash collections	?	?	?	?	?	?
Cash disbursements	?	?	?	?	?	?

(f) Is Company B gross profit increasing or declining?

(g) Is Comapny B cash flow increasing or declining?

(h) What is Company B cash balance at the end of the four-month period?

Answer 1

Previous |Month Current Month COMPANY A Month 1 Month 2 Month Month $ 80,ooo $ 100,000 1oo,000 1+0.3 S 13o,000*1+0.3)169,0oo (1+o.3 219,70o (1+0 169,00o S Revenue Cost of sales (70% of Revenue 130,00o S 219,700 S 10 0000*7096 130000*70% 109000*70% 2197007096 10*7096 6,oo0$ 70,000 $ ,000 $S 118,3oo S 27 80O0O- 100000- 0oO0 130000-91000169000-118300 219700-153790 285610-199927 70OOO Gross profit (Revenue- Cost of Sales 24,0030,o0o o,o00 S 000 S 0-700S Accounts receivable (85% of current month sales 1o0000* 85 130000*85% 109000*85% 219700*85% 285610*8596 80000 85% I S 68,oo0 85,ooo $ 186,745 S 110.500 242,76 Inventory (Cost of sales of following month Cash collections 285,610*(1+0.3)*70% S 70,oo0 S 91,0oo S 118,300 S 27 S259.90 15% of current month's sales Previ0u3 months accounts receivable Tota 15o00 S 19,500S 2 68,ooo S 83,o0o 85,000 S 104,500 $ 186,745 229,587 135,850

Cash disbursements (Paymentfor Inventory S 91,0ooo S 118,3oO S 27 2 0 Net Cash Flow (Cash collection- Cash disbursements 83000- 1000 27 s (8,o0o)ls $ 65.ooo S 65000- 13,80o) S 40) S 23:322) S Opening Cash Balance 7,000S 43:20O S 25,260S Closing Cash balance (Opening Cash Balance Net Cash Flow Sooo 5-7000-1 3800 | 43200-1-940 25260-233221938-30318 5 57,000 S 43:20O S 25,260$ 28,381 b) Company As gross profit is increasing C) Company As net cash flow is declining d) Company A's cash balance at 4 month end is (28,381)

Previous Current Month COMPANY A |Month Month 1 Month 2 Month Month $ 190,o00 $250,00o 250,ooo* (1+0.2) 300,ooo*(1+0.2) $360,ooo*(1+0.2) $432,000* (1+0.2) Revenue 18,400 250000 35 196 Cost of sales 0000*35 00000*35% 60000*35% 432000*35% 100*35% S 66,500 19000o- 87.500 $ 25000o- 87500 Revenue 105.0O0 126,000 $ 151,20O S 181,440 300000-105000 3600oo-12600o 2000-151200 18400-181440 Gross profit 66500 (Revenue- Cost of Sales 123-500 $ 162,500S 195.00O S 234:0O0 S 280,800 S 36,960 ounts receivable (70% of current month sales) $ 133,ooO $ 175,o0o Inventory (Cost of sales of following 2 month Cash collections 30% of current month's sales Previ0u3 month's accounts receivable Tota 250000*70 % 190000*709 00000*70% 60000*70% 432000*70% 18400*70% $ 210.000 252,000 S 02,400 S 62,88o 181440+518,400*(1 |518,400*(1+0.2)*35% +0.2)"35% 518400"(1.2)* 1.2*35% $ 192,500$ 231,000 S 277200 S 2,640-$ 79002 s 75,0oo S o,o00 |S 108,000 S 0O 20 175.00O S 210,000 252.0O0 302,4OO 457,920 205,000 318,ooo $ 381,600

Cash disbursements (Paymentfor Inventory- Closing Inventory+ Cost of Sales- Opening Inventory 231000+87 500- 19250O 277200+10500어 332640+126000. | $399, 168-1512oo-| $479,002+181440-$ 99,168 23100O 32640 126,ooO $ 151,200 S 181,440 S 217,728 S 201,27 Net Cash Flow (Cash collection- Cash disbursements 208ooo- 12000O S 82,ooo S 26500o-1512o0 318000-181440 81600-217728 45792o-261274 113 8oO S Opening Cash Balance 265,800 s 70,000 S 402,360 S 66,232 152.000 Closing Cash balance (Opening Cash Balance Net Cash Flow) 7oo00+820 152000+1138oo 265800+13660 402360+163872 66232+196646 5 152,000 S 265,800 S 402,360 S 66,232 S f) Company Bs gross profit is increasing g) Company Bs net cash flow is increasing h) Company Bs cash balance at 4 month end is S 762,878