Question

Cash Flow Budgeting - 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% rate. Cost of sales are stable 70% of sales revene, yielding a 30% gross profit. Company A sales are 15% for cash with the remaining 85% 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. Company A began the period with a cash balance of $65,000.

(a) For the current month and following three months, determine Company A's: (INCLUDE FORMULAS USED TO SOLVE PROBLEM)

- Revenue

- Cost of sales

- Gross profit

- Accounts receivable

- Inventory

- Cash collections

- Cash disbursements

(b) Is Company A gross profit 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 - 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% rate. Cost of sales are a stable 35% of sales revenue, yielding a 65% gross profit. Company B sales are 30% for cash with the remaining 70% 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 fo $70,000.

(e) For the current month and following three months, determine Company B: (INCLUDE FORMULAS USED TO SOLVE PROBLEMS)

- Revenue

- Cost of sales

- Gross profit

- Accounts receivable

- Inventory

- Cash collections

- Cash disbursements

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

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

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

Answer 1

a..COMPANY A	Previous month	Current month	Month 1	2	3	4
Sales	80000	100000	130000	169000	219700	285610
Cost of sales (Sales*70%)	56000	70000	91000	118300	153790	199927
Gross profit	24000	30000	39000	50700	65910	85683
Cash collections:
15%*sales--- collections	12000	15000	19500	25350	32955
85% *Sales--- collections		68000	85000	110500	143650
Total sales collections		83000	104500	135850	176605
Accounts receivables at mth. End		85000	110500	143650	186745
Cost of sales	56000	70000	91000	118300	153790	199927
Desired Ending Inventory	70000	91000	118300	153790	199927
Total Needed		161000	209300	272090	353717
Less: Beginning Inventory		70000	91000	118300	153790	199927
Purchases required		91000	118300	153790	199927
Cash disbursements
For purchase of inventory		91000	118300	153790	199927
Cash
Beginning balance		65000	57000	43200	25260
Add:
Total sales collections		83000	104500	135850	176605
Total cash available		148000	161500	179050	201865
Less:
Cash disbursements
For purchase of inventory		91000	118300	153790	199927
Ending Balance		57000	43200	25260	1938

(b) Company A gross profit is increasing
(c) Company A cash flow declining
(d) Company A cash balance at the end of the four-month period-----   $ 1938

e.     COMPANY B	Previous month	Current month	Month 1	2	3	4	5
Sales	190000	250000	300000	360000	432000	518400	622080
Cost of sales (Sales*35%)	66500	87500	105000	126000	151200	181440	217728
Gross profit	123500	162500	195000	234000	280800	336960	404352
Cash collections:
30%*sales--- collections	57000	75000	90000	108000	129600
70% *Sales--- collections		133000	175000	210000	252000
Total sales collections		208000	265000	318000	381600
Accounts receivables at mth. End		175000	210000	252000	302400
Cost of sales	66500	87500	105000	126000	151200	181440
Desired Ending Inventory(next 2 mths. COGS)	192500	231000	277200	332640	399168
Total Needed		318500	382200	458640	550368
Less: Beginning Inventory		192500	231000	277200	332640	332640
Purchases required		126000	151200	181440	217728
Cash disbursements
For purchase of inventory		126000	151200	181440	217728
Cash
Beginning balance		70000	152000	265800	402360
Add:
Total sales collections		208000	265000	318000	381600
Total cash available		278000	417000	583800	783960
Less:
Cash disbursements
For purchase of inventory		126000	151200	181440	217728
Ending Balance		152000	265800	402360	566232
(f) Company B gross profit is increasing
(g) Company B cash flow is increasing
(h) Company B cash balance at the end of the four-month period-----   $ 566232