Tiki Company has projected sales and production in units for the second quarter of the coming year as follows:
|
|
April
|
May
|
June
|
| Sales
|
50,000
|
40,000
|
60,000
|
| Production
|
60,000
|
50,000
|
50,000
|
Cash-related production costs are budgeted at $5 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $100,000 per month. The accounts payable balance on March 31 totals $190,000, which will be paid in April.
All units are sold on account for $14 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totaled $500,000 ($90,000 from February’s sales and the remainder from March).
Required
schedule for each month showing budgeted cash disbursements for Tiki Company.
schedule for each month showing budgeted cash receipts for Tiki Company.
In the dynamic landscape of business operations, efficient cash flow management is crucial for the sustainable growth and success of any company. Tiki Company, a hypothetical entity, is gearing up to tackle its projected sales and production challenges for the upcoming second quarter. This essay presents a comprehensive analysis of Tiki Company’s budgeted cash disbursements and receipts for the months of April, May, and June.
To ensure smooth production and operations, Tiki Company needs to allocate funds for various expenses, including production costs, selling, and administrative expenses, as well as accounts payable. The company incurs cash-related production costs at a rate of $5 per unit produced. Notably, 40% of these costs are paid in the month they are incurred, while the remaining 60% is disbursed in the subsequent month. Moreover, selling and administrative expenses are fixed at $100,000 per month, contributing to the overall cash outflow.
In the given scenario, Tiki Company starts with an accounts payable balance of $190,000 on March 31, which will be fully paid in April. This adds to the initial cash disbursements for the month. The company’s disbursement schedule can be outlined as follows:
April: Payment of accounts payable ($190,000) and 40% of April’s production costs.
May: 60% of April’s production costs and 40% of May’s production costs.
June: 60% of May’s production costs.
Budgeted Cash Receipts: Managing cash receipts efficiently is equally important. Tiki Company sells all its units on account for $14 each. The budgeted cash collections are distributed across different months based on the sales cycle. Cash collections are expected to be received as follows:
April: 60% of April’s sales.
May: 30% of April’s sales and 60% of May’s sales.
June: 10% of April’s sales and 30% of May’s sales.
Additionally, accounts receivable on April 1 totaled $500,000, stemming from prior sales. This balance is considered for cash collection calculations over the three months.
Effective cash flow management is the backbone of sustainable business operations. Tiki Company’s projected budgeted cash disbursements and receipts for the second quarter highlight the importance of aligning production, sales, and financial management strategies. By considering the timelines of cash inflows and outflows, Tiki Company can proactively plan for contingencies, seize growth opportunities, and maintain a healthy financial position. This analysis underscores the significance of meticulous budgeting and forecasting in achieving financial stability and growth aspirations.
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