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Autumn 2005- TBS 907- TUTORIAL 7- Cash Budgeting- Solutions

# Autumn 2005- TBS 907- TUTORIAL 7- Cash Budgeting- Solutions...

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TBS 907- AUTUMN 2005 TUTORIAL 7 – CASH BUDGETING Question 1 Spancy Audio Company has a 60-day average collection period and wishes to maintain a \$5 minimum cash balance. Based on this and the information below, complete the following cash budget. What conclusions do you draw? Solutions Since Spancy audio has a 60-day collection period, only those sales made in the first 30 days of the quarter will be collected in the same quarter. Total cash collections in the first quarter will thus equal 30/90 of sales plus beginning receivables or \$120 + 1/3 x\$90 = \$150. ending receivables for the first quarter ( and second quarter beginning receivables) are the other 2/3 of sales , or 2/3 x \$90 = \$60. SPANCY AUDIO COMPANY CASH BUDGET ( IN MILLIONS) July Oct Jan Apr to to to to Sep Dec Mar June Q1 Q2 Q3 Q4 Beginning Receivables \$120.00 \$60.00 \$80.00 \$100.00 Sales \$90.00 \$120.00 \$150.00 \$120.00 Cash Collections \$150.00 \$100.00 \$130.00 \$140.00 Ending Receivables \$60.00 \$80.00 \$100.00 \$80.00 Total Cash Collections \$150.00 \$100.00 \$130.00 \$140.00 Total Cash Disbursements \$80.00 \$160.00 \$180.00 \$160.00 Net Cash Inflow \$70.00 -\$60.00 -\$50.00 -\$20.00 Beginning Cash Balance \$5.00 \$75.00 \$15.00 -\$35.00 Net Cash \$70.00 -\$60.00 -\$50.00 -\$20.00 Ending Cash Balance \$75.00 \$15.00 -\$35.00 -\$55.00 Minimum Cash Balance -\$5.00 -\$5.00 -\$5.00 -\$5.00 Cumulative Surplus( deficit) \$70.00 \$10.00 -\$40.00 -\$60.00 The primary conclusion from this schedule is that, beginning in the third quarter, Spancy’s cash surplus become a cash deficit. By the end of the year Spancy will need to arrange for \$60 million in cash beyond what will be available. TBS 907- A UTUMN 2005 -T UTORIAL 7- C ASH B UDGETING - SOLUTIONS P AGE 1 OF 6

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Question 2 The Crimestopper Company has projected the following quarterly sales amounts for the coming year: Q1 Q2 Q3 Q4 Sales ( in millions) \$111.00 \$210.00 \$240.00 \$120.00 Accounts receivables at the beginning of the year are \$90m. Crimestopper has a 60- day collection period. Calculate cash collections in each of the four quarters by completing the following:
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