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TOPIC: Cash Budgeting
: 15.04.2017 22:00
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. In this assessment, you will explore elements of a cash budget. Use the background information in the Required Resources to prepare and analyze elements of a 3-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 an analysis in three parts. Part A Assume management wants to maintain a minimum cash balance of $50,000. Prepare a cash budget for Spicer Corporation for the upcoming year. Include a supplement schedule for cash receipts. 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. 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 2nd quarter. 10 percent lower than budgeted for the 3rd quarter. 20 percent lower than budgeted for the 4th 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. 50 percent in the quarter after the sale. 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 The outdated machine, which the company planned to replace in October, had to be replaced in March due to a broken part.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 a memo 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: Written communication is free of errors that detract from the overall message. APA formatting: Resources and citations should adhere to current APA guidelines for style and formatting. Length: Two memos, plus required schedules. Font and font size: Times New Roman, 12 point.
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