A cash budget helps an organization plan and control the movement of cash into and out of the company. It is important for an organization to have a good understanding of its cash needs in order to identify instances of cash idleness or shortage. Cash on hand allows the organization to make commitments to various stakeholders, including employees and suppliers. Idle cash represents missed opportunities to reinvest into the organization and to return value to shareholders.

You will create and use an Excel spreadsheet for your calculations for the problems below.

Gladiator Robotics Read the information below and complete Parts I, II and III

The board of directors of Gladiator Robotics is considering whether or not to donate to a national robotics convention for high school students interested in technology and engineering. The company needs you to prepare a monthly cash budget to determine the available cash reserves for January, February, and March. Relevant data appear below.

October actual November actual December actual January February March Sales $300,000 $325,000 $450,000 $310,000 $350,000 $400,000

All sales are on account. Collections are expected to be 60% in the month following the sale, 25% in the second month following the sale, and 10% in the third month following the sale. Five percent are deemed to be uncollectible. The company sold equipment in February for $20,000 and received a dividend on investments of $4,000 in March. Cash on hand as of January 1^stis $14,000. Material purchases are as follows:

October November December January February March $80,000 $85,000 $105,000 $80,000 $88,000 $92,000

Material purchases are paid 50% in the month purchased and the remainder in the following month. Other disbursements are paid in the month incurred.

January February March Labor and wages 150,000 185,000 215,000 Selling costs 62,000 68,000 78,000 G & A costs 30,000 31,000 38,000 Income taxes 32,000 Capital equipment 50,000

The company wants to maintain a cash balance at the end of each month of at least $10,000. It has a $250,000 line of credit at the bank and will borrow from the bank in order to maintain this balance. Part I: Prepare a monthly cash budget for January, February, and March using the attached template. Part II: Analyze the cash budget and make recommendations to the board of directors of Gladiator Robotics regarding your findings. Be specific regarding possible causes and remedies (if applicable).

Part III: What if any concerns do you have about the ability to make the donation? Also, do you have any concerns about cash on hand which might impact variable HR expenses such as recruitment costs or other commitments to employees including staffing, development or rewards? Be specific.

October (actual) November (actual) December (actual) January February March $300,000 $325,000 $450,000 $310,000 $350,000 $400,000 0% 0 0 0 One month ago 60% 270000 186000 Two months ago 25% 81250 Three months ago 10% 30000 Bad debts 5% Expected sales Cash receipts: Cash sales Collection from sales: 100% Other cash receipts 381250 Beginning of month cash 14000 Total cash available 395250 Cash disbursements: Materials 92500 Labor and wages Selling costs G & A costs Income taxes Capital equipment Interest expense Total cash disbursements 384500 Ending cash balance (deficiency) before borrowings/ (repayments) or (investments)/redemptions 10750 Bank borrowings/(repayments) (investments)/redemptions 0 Ending cash balance (deficiency) 10750 October (actual) December (actual) January February March $300,000 Expected sales November (actual) $325,000 $450,000 $310,000 $350,000 $400,000 0 0 0 195000 270000 186000 210000 75000 81250 112500 77500 30000 32500 45000 381250 331,000 332500 20000 4000 Cash receipts: Cash sales 0% Collection from sales: One month ago 60% Two months ago 25% Three months ago 10% Bad debts 180000 5% 100% Other cash receipts Beginning of month cash 14000 10750 10000 Total cash available 395250 361,750 346,500 Materials 92500 84000 90000 Labor and wages 150000 185000 215000 Selling costs 62000 68000 78000 G & A costs 30000 31000 38000 Cash disbursements: 32,000 Income taxes Capital equipment 50,000 Interest expense Total cash disbursements 384500 368000 453,000 Ending cash balance (deficiency) before borrowings/ (repayments) or (investments)/redemptions 10750 (6,250) (106500) Bank borrowings/(repayments) (investments)/redemptions 0 3,750 116500 Ending cash balance (deficiency) 10750 10000 10000 Part II In Jan, there is a surplus of cash estimated. This means that the company will be having some cash available for the execution of the business activities. However, in February and March the estimated cash budget has a cash deficiency implying that the cash collected is much lower than the cash received during the respective months. This means that the company will lack cash available to perform its functions well. As a result of this, the company will result to external borrowing from the bank which will attract further additional interest costs. The main causes that may be attributed to the cash deficiency may be the increase in the operating expenses such as wages and salaries, selling costs and the decrease in the cash collection. The best way to convert the cash deficiency to cash surplus is to increase the selling efforts so as more cash can be collected from sales revenues to customers, cut down significantly the operating expenses such as selling costs. Part III The donations to the high school students will not be a success and should be strongly not recommended. This is because during the months of February and March, the company will be in serious financial distress since it will be having negative cash flows. As a result meeting other additional expenses incidental to the donations such as rewards, staffing etc. will further push the company to increased financial distress. Further, since the cash on hand in the months of February and March will be negative, the firm should try to cut down recruitment costs or other commitments to employees including staffing, development or rewards. This will ensure that the operating costs have been cut down leading to lower cash disbursements and hence save some cash from being spent. This will help the company have some cash available for the execution of the business activities or may be even be reinvested in a high return investment. October (actual) December (actual) January February March $300,000 Expected sales November (actual) $325,000 $450,000 $310,000 $350,000 $400,000 0 0 0 195000 270000 186000 210000 75000 81250 112500 77500 30000 32500 45000 381250 331,000 332500 20000 4000 Cash receipts: Cash sales 0% Collection from sales: One month ago 60% Two months ago 25% Three months ago 10% Bad debts 180000 5% 100% Other cash receipts Beginning of month cash 14000 10750 10000 Total cash available 395250 361,750 346,500 Materials 92500 84000 90000 Labor and wages 150000 185000 215000 Selling costs 62000 68000 78000 G & A costs 30000 31000 38000 Cash disbursements: 32,000 Income taxes Capital equipment 50,000 Interest expense Total cash disbursements 384500 368000 453,000 Ending cash balance (deficiency) before borrowings/ (repayments) or (investments)/redemptions 10750 (6,250) (106500) Bank borrowings/(repayments) (investments)/redemptions 0 3,750 116500 Ending cash balance (deficiency) 10750 10000 10000 Part II In Jan, there is a surplus of cash estimated. This means that the company will be having some cash available for the execution of the business activities. However, in February and March the estimated cash budget has a cash deficiency implying that the cash collected is much lower than the cash received during the respective months. This means that the company will lack cash available to perform its functions well. As a result of this, the company will result to external borrowing from the bank which will attract further additional interest costs. The main causes that may be attributed to the cash deficiency may be the increase in the operating expenses such as wages and salaries, selling costs and the decrease in the cash collection. The best way to convert the cash deficiency to cash surplus is to increase the selling efforts so as more cash can be collected from sales revenues to customers, cut down significantly the operating expenses such as selling costs. Part III The donations to the high school students will not be a success and should be strongly not recommended. This is because during the months of February and March, the company will be in serious financial distress since it will be having negative cash flows. As a result meeting other additional expenses incidental to the donations such as rewards, staffing etc. will further push the company to increased financial distress. Further, since the cash on hand in the months of February and March will be negative, the firm should try to cut down recruitment costs or other commitments to employees including staffing, development or rewards. This will ensure that the operating costs have been cut down leading to lower cash disbursements and hence save some cash from being spent. This will help the company have some cash available for the execution of the business activities or may be even be reinvested in a high return investment