Chapter 30: Cash Management

Problem 1

KHANNA MANUFACTURING COMPANY

CASH BUDGET
For the period from January to June 1998
Dec Jan Feb Mar
Sales 60,000 84,000 156,000 132,000
Credit sales 70% 42,000 58,800 109,200 92,400
Collections:
Cash 30% 25,200 46,800 39,600
First month 70% 42,000 58,800 109,200
Total Collections 67,200 105,600 148,800
Purchases 75% 63,000 117,000 99,000
Payments:
Preceding month 100% 63,000 117,000 99,000 171,000
Total Payments 117,000 99,000 171,000

Total Collections (A) 67,200 105,600 148,800

Less: Disbursement
Payments for purchases 117,000 99,000 171,000
Wages & salaries 9,600 9,600 9,600
Rent 2,400 2,400 2,400
Others 1% 840 1,560 1,320
Total Disbursement (B) 129,840 112,560 184,320
Surplus/(Deficit) [A-B] -62,640 -6,960 -35,520
Opening cash balance 84,480 21,840 14,880
Total cash 21,840 14,880 -20,640
Current borrowing 0 0 22,000
Interest on borrowing 0 0 0
Closing cash balance 21,840 14,880 1,360
Cumulative borrowing 0 0 22,000
Cumulative interest 0 0 0
Notes:
Annual Monthly
Borrowing rate 18% 0.015

Problem 2

Kay Company
Cash Budget
For the period January to March 19..
Dec Jan Feb Mar
Sales 520,000 500,000 600,000 750,000
Credit sales 20% 104,000 100,000 120,000 150,000
Collections:
Cash 80% 400,000 480,000 600,000
First month 20% 104,000 100,000 120,000
Total Collections 504,000 580,000 720,000
Purchases 40% 208,000 200,000 240,000 300,000
Payments:
First month 40% 208,000 200,000 240,000
Total Payments 208,000 200,000 240,000

Total Collections (A) 504,000 580,000 720,000

Less: Disbursement
Payments for purchases 208,000 200,000 240,000
Salaries 280,000 280,000 280,000
Dividend 75,000 0 0
Misc. expense 15,000 15,000 15,000
Bills payable 0 36,000 0
Capital expenditure 0 80,000 190,000
Total Disbursement (B) 578,000 611,000 725,000
Surplus/(Deficit) [A-B] -74,000 -31,000 -5,000
Opening cash balance 500,000 500,000 500,000
Total cash 426,000 469,000 495,000
Interest income (exp.) 0 1,110 1,592
Current borrowing 74,000 32,110 6,592
Current investment 0 0 0
Closing cash balance 500,000 500,000 500,000
Cumulative investment/(borrowing) 74,000 106,110 112,702
Cumulative interest income/(exp) 0 1,110 2,702

Minimum cash balance 500,000

Annual Quarterly Monthly
Borrowing rate 18% 0.045 0.015
Lending 15% 0.0375 0.0125

Problem 3

Kamp Manufacturing Company

Cash Budget
For the period May to July
Jan Feb Mar Apr
Sales 75,500 75,000 90,000 90,000
Credit sales 40% 30,200 30,000 36,000 36,000
Collections:
Cash 60% 45,300 45,000 54,000 54,000
First month 50%
Second month 50%
Total Collections
Purchases 75% 56,625 56,250 67,500 67,500
Payments:
First month 80%
Second month 20%
Total Payment
Total Collections (A)
Less: disbursement
Payments for manufacturing
Fixed operating expenses
Variable operating expenses 10%
Interest 12%
Advance taxes
Capital expenditure
Total Disbursement (B)
Surplus/(Deficit) [A-B]
Opening cash balance
Total cash
Current borrowing
Closing cash balance
Cumulative borrowing
Minimum cash balance 30,000

Problem 4
A. Average credit sales (Rs) 1,500,000
B. Working days in a year 300
C. Sales per day (Rs) [A/B] 5,000
D. Processing time saved (days) 2
E. Amount (Rs) [C x D] 10,000
F. Interest rate 18%
G. Interest saved (Rs) [E x F] 1,800

Problem 5

A. Daily collections (Rs) 200,000

B. Reduction in float (days) 4
C. Amount (Rs) [A x B] 800,000
D. Minimum balance with bank (Rs) 400,000
E. Opportunity cost 15%
F. Net interest saving (Rs) [(C - D) x E ] 60,000

G. Fixed fee (Rs) 20,000

H. Net interest saving (Rs) [C x E - G] 100,000

Problem 6

A. Daily collections (Rs) 500,000

B. Required rate of return 10%
C. Administration time (days) 6
D. Total opportunity cost (Rs) [A x B x C] 300,000

E. Reduction in admin. time (days) 3

F. Reduced cash balance (Rs) [(C - E) x A] 1,500,000

Problem 7

A. Annual turnover (Rs) 97,000,000

B. Daily turnover (Rs) 269,444
C. Reduction in collection time (days) 2
D. Amount (Rs) [B x C] 538,889
E. Borrowing rate 18%
F. Net savings (Rs) 63,050

Problem 8

A. Amount to be transferred (Rs) 1,500,000

B. Mailing cost (Rs) 10
C. Transit time (days) 10
D. Opportunity cost 12%
E. Total cost (Rs) [B + (A x C x D/365)] 4,942
Apr May Jun Jul
228,000 288,000 108000 108000
159,600 201,600 75,600 75,600

68,400 86,400 32,400 32,400

92,400 159,600 201,600 75,600
160,800 246,000 234,000 108,000
171,000 216,000 81,000 81,000

216,000 81,000 81,000

216,000 81,000 81,000

160,800 246,000 234,000

216,000 81,000 81,000

9,600 9,600 9,600
2,400 2,400 2,400
2,280 2,880 1,080
230,280 95,880 94,080
-69,480 150,120 139,920
1,360 1,550 151,670
-68,120 151,670 291,590
70,000 0 0
330
1,550 151,670 291,590
92,000 92,000 92,000
330 330 330
May Jun Jul
105,000 120,000 150,000
42,000 48,000 60,000

63,000 72,000 90,000

18,000 21,000 24,000
18,000 18,000 21,000
99,000 111,000 135,000
78,750 90,000 112,500

54,000 63,000 72,000

13,500 13,500 15,750
67,500 76,500 87,750
99,000 111,000 135,000

67,500 76,500 87,750

15,000 15,000 15,000
10,500 12,000 15,000
27,000
15,000
60,000
93,000 163,500 159,750
6,000 -52,500 -24,750
30,000 36,000 30,000
36,000 -16,500 5,250
0 13,500 24,750
36,000 30,000 30,000
0 13,500 38,250