ACCT504 Case Study 3 on Cash Budgeting

The cash budget was covered during Week 4 when we covered TCO D and you read
Chapter 4. There is also a practice case study to work on. This case study should be
uploaded to the Week 6 Assignment Dropbox by 11:59 p.m. mountain time on Sunday
at the end of Week 6. You are encouraged to use the Excel template file provided in
Doc Sharing.

The LBJ Company has budgeted sales revenues as follows.

April May June
Credit sales $94,000 $89,500 $75,000
Cash sales 48,000 75,000 57,000
Total sales $142,000 $164,500 $132,000

Past experience indicates that 30% of the credit sales will be collected in the month of
sale and the remaining 70% will be collected in the following month.

Purchases of inventory are all on credit; 40% is paid in the month of purchase and 60%
in the month following purchase. Budgeted inventory purchases are $195,000 in April,
$135,000 in May, and $63,000 in June.

Other budgeted cash receipts: (a) sale of plant assets for $33,000 in May, and (b) sale
of new common stock for $50,000 in June. Other budgeted cash disbursements: (a)
operating expenses of $15,000 each month, (b) selling and administrative expenses of
$10,150 each month, (c) purchase of equipment for $35,000 cash in May, and (d)
dividends of $20,000 will be paid in June.

The company has a cash balance of $20,000 at the beginning of May and wishes to
maintain a minimum cash balance of $20,000 at the end of each month. An open line of
credit is available at the bank and carries an annual interest rate of 10%. Assume that
all borrowing is done on the first day of the month in which financing is needed and that
all repayments are made on the last day of the month in which excess cash is available.
Also assume that there is no outstanding financing as of May 1.

Requirements:

1. Use this information to prepare a cash budget for the months of May and June, using
the template provided in Doc Sharing.

2. What are the three sections of a cash budget, and what is included in each section?

3. Why is a cash budget so vital to a company?

4. What are the five basic principles of cash management that a company can follow in
order to improve its chances of having adequate cash?



Grading Rubric for Cash Budget Case Study

Category Points % Description
Documentation
and Formatting
6 10% Case Study worksheet will be done in Excel
and will contain formulas to receive maximum
credit.
Organization
and Cohesiveness
6 10% A quality solution will include the content
properly organized in accordance with the
instructions provided. The cash budgets will be
complete and the analysis will be consistent
with the cash budgets presented.
Editing 6 10% Quality work will be free of any mathematical,
spelling, punctuation, or grammatical errors.
Sentences and paragraphs (where
appropriate) will be clear, concise, and factually
correct.
Content 42 70% A quality project will have all required work
completed and will be correct.
Total 60 100% A quality project will meet or exceed all of the
requirements.