Unit 2

• PRINT

Cash Budgeting

INTRODUCTION

• Profit planning refers to the overall budget process. At the core of this process is the organization's master budget. As a manager, you are probably familiar with your own department's budget. However, are you familiar with how that budget rolls up into the master budget? This unit looks at how individual budgets contribute to the master budget.
• Of particular concern is the sales budget, which is the foundation of all other individual budgets. If the sales budget is not good, accurate, or complete, then the rest of the master budget will be suspect. For example, in the sales budget, you will forecast the volume of goods sold. If this number is unrealistic, the revenues will be affected. This, in turn, affects the capital expenditures. Unfortunately, organizations often do not realize this consequence and do not spend enough time on the sales budget. The budgeting process is unforgiving in this way. This unit looks at techniques for making reliable forecasts to help you create realistic budgets.

OBJECTIVES

• To successfully complete learning unit, you will be expected to:
• Prepare cash budgets.
• Use cash budgets to prepare forecasts.
• Apply budget performance analysis to forecasting and planning.
• LEARNING ACTIVITIES
• Collapse All
• Toggle Drawer

[u02s1] Unit 2 Study 1

STUDIESReadings

• UseManagerial Accountingto read the following:
• Chapter 5, "Cost-Volume-Profit Relationships," on pages 187-211.
• Remember, your e-books are available for reading via VitalSource Bookshelf. You can access Bookshelf from the left Course Tools menu or via the optional downloaded application.
• Read the following from the Capella University Library:
• Anderson and Leese's 2016 article, "A Formula for the Units to Satisfy an Operation's Desired Rate of Return in CVP AnalysisA Conceptual Approach," fromAmerican Journal of Business Education, volume 9, issue 2, pages 87-100.
• Chapter 9, "Budgeting," from Chalmers, Birt, and Byrne's 2012 book,Accounting: Business Reporting for Decision Making, on pages 378-413.
• Conine's 2013 article, "Integrating Standard Cost-Volume-Profit and Degree of Operating Leverage With Accounting Variance Analysis," fromJournal of Financial Education, volume 39, issue 3/4, pages 121-139.
• Toggle Drawer

[u02s2] Unit 2 Study 2

OPTIONAL PRACTICE EXERCISES

• To better understand the material covered in this unit, you may want to complete the following practice exercises fromManagerial Accounting:
• Chapter 8 exercises:8-1.
• 8-7.
• 8-11.
• 8-12.
• Note: These problems are not required and will not be graded.
• Toggle Drawer

[u02a1] Unit 2 Assignment 1CASH BUDGETING

• By successfully completing this assignment, you will demonstrate your proficiency in the following course competencies and assignment criteria:
• Competency 1: Analyze budget practices in organizations.Analyze the purpose and key aspects of a cash budget.
• Recommend measures that could have prevented budget gaps.
• Competency 2: Apply appropriate budgeting techniques for planning, executing, and controlling.Prepare cash budget calculations.
• Competency 4: Evaluate budget performance.Explain gaps between cash budgets and actual amounts.
• Apply budget performance analysis to forecasting and planning.
• Competency 5: Communicate in a manner that is consistent with the expectations of a business professional.Communicate in a manner that is consistent with the expectations of a business professional.

Instructions

• Cash budgets forecast cash needs to achieve operational goals especially in terms of expected financing. The cash budget is a component of the master budget system. this assignment, you will explore elements of a cash budget.
• Use the background information linked in Resources to prepare ,analyze elements of a three-page cash budget, recommend budget adjustment measures, and discuss how management uses information for budgeting purposes.
• Review the Spicer Corporation Budget Details document and then use it to complete, analysis in three parts.

Part A

• Assume management wants to maintain a minimum cash balance of $50,000. Prepare cash budget, including a supplement schedule for cash receipts, for Spicer Corporation's upcoming year. Use the attached cash budgeting template.

Part B

• After completing Spicer's cash budget, draft a memo to management explaining the general purpose of a cash budget and its relationship to operational goals. As part of the memo, identify at least three key aspects of the current cash budget that management should note. For each key aspect, be sure to discuss how the overall cash budget will be impacted if there is a change in the expectation. Use the Memo Template to structure your memo.

Part C

• After completing and analyzing the cash budget, Spicer's management felt confident that the financing requirements and short-term goals could be met. Unfortunately, due to a declining economy, the budgeted sales were not met. The actual sales were 5 percent lower than budgeted for second quarter, 10 percent lower than budgeted for the third quarter and 20 percent lower than budgeted for the fourth quarter.
• The declining economy also impacted many customers' ability to pay on their accounts in a timely manner. As a result, management reported that the actual cash collections for the third and fourth quarter were 45 percent in the quarter of the sale and 50 percent in the quarter after the sale, with the remaining 5 percent uncollected.
• The outdated machine, which the company planned to replace in October, had to be replaced in March due to a broken part. Management determined that it was better to move forward with the purchase of the new machine rather than fix the broken part.
• Based on these changes, prepare memos, following the Memo Template, to top management that accomplishes the following:
• Explain the differences between the cash budget amount and the actual amounts.
• Outline budget adjustments that need to be made (if any) to maintain the minimum required cash balance. Explain why the adjustments need to be made, or why no adjustments are needed.
• Recommend measures management should have taken to respond to these changes during the year to adjust their budget.
• Describe how management should use the above analysis to prepare the next year's cash budget.

Additional Requirements

• Written communication: Writing is free of errors that detract from the overall message.
• APA : Resources and citations should adhere to current APA and formatting standards.
• Length: Two memos plus required schedules.