Blog: Fin622 Assignment No. 2 Announced/solution

“Corporate Finance (Fin622)”

Assignment No. 2 Marks: 10

Being the financial analyst of Javed & Co., you are required to forecast the cash requirements for the month of March and April. The sales figures of Javed & Co. for the various months are portrayed in the given table.

Month Sales (in Rs.)

January, 2010 500,000

February, 2010 600,000

March, 2010 600,000

April, 2010 1000,000

Typically, the company collects 30 percent of its sales in the month of sale, 50 percent in subsequent month and the remaining 20 percent of sales are collected in the second month after the sale. All sales are credit sales.

The purchase of raw materials to produce the product amounts 70 percent of sales of the same month for month of March and 60 percent of sales of the same month for month of April. All the purchases are cash purchases.

Labor cost including overtime, are expected to be Rs. 80,000 in March and Rs. 200,000 in April. The other costs including selling, administrative, tax and other cash expenses are expected to be Rs. 20,000 for the month of March and 100,000 for the month of April. 

Note: Assume the minimum cash balance requirements for each month to be Rs. 40,000.

Requirements:

On the basis of above information,

A) Prepare a cash budget for the month of March and April.

B) Indicate whether the company is in “cash excess” or “cash deficit” and by which amount?

Schedule

Opening Date and Time January 10 , 2011 At 12:01 A.M. (Mid-Night)

Due Date and Time January 13 , 2011 At 11:59 P.M. (Mid-Night)
..................
Solution:


Mar-10

Collections

30% from Mar Sales 180,000
50% from Feb Sales 300,000
20% from Jan Sales 100,000
Total receipts 580,000

Payments
Cash purchase (70% of March Sales) 420,000
Direct labor 80,000
Selling, admin & others 20,000
Total payments 520,000 
Net change 60,000
Add: Opening balance (minimum requirement) Rs.40,000 
Expected closing balance Rs.100,000
Less: Required closing balance Rs.40,000
Cash excess in the month of Mar by Rs.60,000/-

prepare cash budget for the month of april by yourself very similar to mar cash budget

.................
(A)
For the month of March
Opening Balance 40,000
Add Cash Receipts 

20 %( 500,000) of January sales 100,000
50% (600,000) of February sales 300,000
30% (600,000) of March sales 180,000
Total cash receipt for the month of Match 580,000
Total Budgeted cash 620,000

Cash payment 
Cash purchases 70 %( 600,000) of sales 420,000
Direct labor including over time 80,000
Selling, Tax and other expenses 20,000
Total payment of cash for the month of March 520,000
Expected closing Balance 100,000
Less Closing Balance requirement 40,000
Excess Cash Balance 60,000

April

Opening Balance 100,000
Add Cash Receipts 

20 %( 600,000) of February sales 120,000
50% (600,000) of March sales 300,000
30% (1000, 000) of April sales 300,000
Total cash receipt for the month of Match 720,000
Total Budgeted cash 820,000

Cash payment 
Cash purchases 60 %( 1000,000) of sales 600,000
Direct labor including over time 200,000
Selling, Taxes and other expenses 100,000
Total payment of cash for the month of March 900,000
Expected closing Balance (80,000)
Less Closing Balance requirement 40,000
Deficit Cash Balance (120,000)

closing cash balance of March is transfer to the opening balance of April

(B)

Cash Excess Balance the in march 60,000
Cash deficit Balance in April 120,000