ACCT504 Case Study 3 on Cash Budgeting



Case Study 3 on Cash Budgeting

The cash
budget was covered during Week 4 when we covered TCO D and you read Chapter 7.
There is also a practice case study to work on. Your professor will provide the
solution to the practice case study at the end of Week 5. This case study should
be uploadedby 11:59 p.m.mountain time on Sunday at the end of Week 6 to the Week
6 AssignmentDropbox. 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 and 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.


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

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

Grading Rubric for Cash Budget Case Study





and Formatting



Case Study worksheet will be done in Excel
and will contain formulas to receive maximum credit.

and Cohesiveness



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




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.




A quality project will have all required work completed and will
be correct.




A quality project will meet or exceed all of the


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