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Cash Budget
Cash Budget
Table 5
Computation of Estimated Production Costs
1. All sales are credit sales. The P2,400,000 estimated sales is divided into 6
months
2. Based on historical data, 20% of the credit sales are collected in the
month of sale and 80% is collected in the following month.
3. Assume the following monthly sales revenue of Ocin Corporation:
Collection
20% of current sales 72,000 48,000 72,000 120,000 72,000 96,000
{
80% previous 230,400 288,000 192,000 288,000 480,000 288,000
month’s sales
Total P302,400 P336,000 P264,000 P408,000 P552,000 P384,000
Note: The total cash receipts is the sum of the total collection. Sales are NOT PART of the
computation of the cash receipts. Sales were placed in the summary ONLY TO SHOW the
source in computing the collections.
Assumption and Computations made on cash payments
Table 10
Computation of the composition of production costs:
The units and unit costs are taken from the Table 3 and Table 4 respectively. The total
cost = Units x Unit costs. The combined cost is equal to the total cost of DCD and total costs
of Blue Ray players.
Table 11
Computation of the Average monthly production costs
The total cost is taken from Table 10. The average monthly cost is derived by dividing total
costs by the time frame
Assume that the December 31, 2019 raw material
purchases is P75,500. Assume further that all raw
material purchases are on credit and that full payment
is made a month after the purchase. All expenses will
also be divided equally for 6 months. They are paid on
the month they were incurred. The 6-month income tax
due shall be paid in two installments (March and June).
This is also true with dividends, labor and overhead.
Dividends shall be paid on June 2020. A new
equipment will be acquired for cash amounting to
P5,000 in February 2020 and P8,000 in June2020.
Table 12
Summary of the Monthly Cash Payments (in Php)
The main purpose for cash budget is to aid management in anticipating the need for
outside funding at the end of each month. In this example, let us assume that the company
desires to keep a minimum cash balance of P200,000 at all times. If the cash balance goes
below the minimum level, the firm will borrow funds from the bank. If the cash balance goes
above the minimum level and it still has loan outstanding from the bank, the company will
use the excess cash to pay the loan. Let us further assume that in January 1, 2020, the
beginning cash balance is P200,000 practice in Table 14
Table 14
Cash Budget (Including borrowing and repayment)
January February March April May June
Net Cash Flow P (34,651) P (22,808) P(147,738) P 54,192 P 198,545 P (50,738)
Beginning cash balance 200,000 200,000 200,000 200,000 200,000 200,000
Cumulative Cash balance 165,349 177,192 52,262 254,192 398,545 196,802
Monthly loan (repayment) 34,651 22,808 147,738 (54,192) (151,005) 3,198
Cumulative loan balance 34,651 57,459 205,197 151,005 0 3,198
Ending Cash balance P200,000 P200,000 P200,000 P200,000 P247,540 P200,000
Now let us start to analyze the January column of the cash budget. The
net cash flow based on Table 13 is P(34,651), we then added this to the
beginning balance of cash of P200,000. The difference is P 165,349. Now this
cash balance is below P200,000. Based on the assumption, the company
maintains P200,000 cash balance at all times this is their company policy. In
order for them to make their cash balance of P165,349 to P200,000 the
company borrowed money from the bank amounting to P22,808 (P200,000 –
required minimum balance MINUS P165,349 actual cash balance). By
Borrowing P22,808 the cash balance now of the company is P200,000, which
is required minimum balance. The cumulative loan balance of P 34, 651 is the
monthly loan balance of P34,651 plus the cumulative loan balance of zero.
This is zero because before the company borrowed, it has no loan balance yet.
The ending cash balance of P200,000 is the result of adding the cumulative
cash balance of P165,349 plus the monthly loan balance of P34,651
Notice that the explanation for the February column figures is almost
exactly the same as January column. The cycle goes on to March. HOWEVER,
if you look at April column figures, the net cash low of P54,192 added to the
beginning cash balance of April of P200,000give you cumulative cash balance
of P254,192. This greater than P200,000 which the minimum required cash
balance. Based on the assumption give which is the company policy, any
excess of the cash balance to the required minimum balance SHALL BE USED
TO PAY any loan balance outstanding. Therefore P54,192 was used to pay the
cumulative loan balance of P205,197 for the March column. This would make
the cumulative loan balance of April to P151,005. The same explanation for
April will be used to explain the May column figures.
Pro-Forma Statement of Financial Position (SFP)
RNF = Asset ratio (sales) – Liability ratio (sales) – NPR (new sales) x DPR
= [48%(P150mil)] – [20%(P150mil)] – [5%(P900mil] x 40%
= P24 million
Or