Cash budget; advanced) Collegiate Management Education (CME), Inc., is a nonprofit organization that sponsors a wide variety of management seminars throughout the Southwest. In addition, it is heavily involved in research into improved methods of teaching and motivating college administrators. Its seminar activity is largely supported by fees, and the research program is supported by membership dues.

CME operates on a calendar-year basis and is finalizing the budget for 2006. The following information has been taken from approved plans, which are still tentative at this time:

Seminar Program Revenue:

The scheduled number of programs should produce $12,000,000 of revenue for the year. Each program is budgeted to produce the same amount of rev¬ enue. The revenue is collected during the month the program is offered.

The programs are scheduled during the basic academic year and are not held during June, July, August, or December. Of the revenue, 12 percent is generated in each of the first five months of the year and the remainder is distributed evenly during September, October, and November.

Direct expenses:

The seminar expenses are made up of three types:

• Instructors’ fees are paid at the rate of 70 percent of seminar revenue in the month following the seminar. The instructors are considered inde¬ pendent contractors and are not eligible for CME employee benefits.

• Facilities fees total $5,600,000 for the year. They are the same for each program and are paid in the month the program is given.

• Annual promotional costs of $1,000,000 are spent equally in all months except June and July when there is no promotional effort.

Research Program Research grants:

The research program has a large number of projects nearing completion. The main research activity this year includes feasibility studies for new pro¬ jects to be started in 2007. As a result, the total grant expense of $3,000,000 for 2006 is expected to be paid out at the rate of $500,000 per month dur¬ ing the first six months of the year.

Salaries and Other CME Expenses

• Office lease—annual amount of $240,000 paid monthly at the beginning of each month.

• General administrative expenses—$1,500,000 annually, or $125,000 per month, paid in cash as incurred.

• Depreciation expense—$240,000 per year.

• General CME promotion—annual cost of $600,000, paid monthly.

• Salaries and benefits are as follows:

Employee benefits amount to $240,000, or 25 percent of annual salaries. Except for the pension contribution, the benefits are paid as salaries are paid. The annual pension payment of $24,000, based on 2.5 percent of total annual salaries, is due on April 15, 2006.
Other Information • Membership income—CME has 100,000 members, each of whom pays a $100 annual fee. The fee for the calendar year is invoiced in late June.
• Collection schedule—July, 60 percent; August, 30 percent; September, 5 percent; and October, 5 percent.
• Capital expenditures—This program calls for a total of $510,000 in cash payments to be spread evenly over the first five months of 2006.
• Cash and temporary investments at January 1, 2006, are estimated at $750,000.

a. Prepare a budget of the annual cash receipts and disbursements for 2006.

b. Prepare a cash budget for CME for January 2006.

c. Using the information developed in parts

(a) and (b), identify two im¬ portant operating problems of CME.
(CMA adapted)

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Number of Employees 1 Annual Cash Salary $50,000 Total Annual Salaries $ 50,000 3 40,000 120,000 45528 30,000 120,000 15 25,000 375,000 15,000 75,000 22 10,000 220,000 50 $960,000