Cash flow exercise

Joseph Pharmacy had sales of $25,000 in December and $30,000 in January. The company expects sales of $20,000 in February and $40,000 in both March and April, and $30,000 in May. The company has no other source of cash inflows. Half of the sales are paid for with cash. Twenty-five percent are paid for in each of the two months following the sale.

Joseph Pharmacy has the following expenses: (show all of your work) and submit in APA format. Title page, introduction and conclusion apply here.

Monthly rent of $1,500

Wages of $5,000 each month

Purchases

50% of next months sales

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Cash Outlay

20% in month purchased

80% in the previous month

From the information provided:

1. 1. Calculate the projected Cash Receipts for the three months of February, March, and April

A Schedule of Projected Cash Receipts for Joseph Pharmacy

Sales forecast	December	January	February	March	April
Cash Sales
Collection of AR: Lagged 1 Month Lagged 2 Months
Other Cash Receipts
Total Cash Receipts

2. 2. Calculate the projected Cash Disbursements for the same months

A Schedule of Projected Cash Disbursements for Joseph Pharmacy

Sales	December	January	February	March	April
Purchases (50% of next months sales) Current month (.20) Lagged 1 month (.80)
Rent payments
Wages/Salaries
Total

Indicate what the total cash balance would be at the end of these three months if the cash balance at the beginning of February was $1,500.

February Cash balance
Total Cash Receipts	December	January	February	March	April
Cash Disbursements
Balance
Balance from Feb - April

4. Define cash inflows and cash outflows

5. If I have a budget where expected gross receipts are what is obtained in #1 and my expected cash disbursements are what is obtained in #2. What can you tell me about the cash balance (obtained in #3) if you were doing a variance analysis? How would you attempt to explain the variance?

6. What is a cash budget, a flexible budget, CAPEX, and OPEX?

7. How often do you use some form of budgeting? Why?

8. If the business world is allowed to explain away their variances to budget, why is budgeting so important?