Question : Too Late, Inc., has a 40 – day average collection period and wants to
ID: 2760745 • Letter: Q
Question
Question:
Too Late, Inc., has a 40 – day average collection period and wants to maintain a minimum cash balance of $ 10 million, which is what the company currently has on hand. The company currently has a receivables balance of $110 million and has developed the following sales and cash disbursement budgets in millions:
Q1
Q2
Q3
Q4
Sales
$210
$280
$260
$330
Total cash disbursement
190
240
350
220
Complete the following cash budget for the company. What conclusions do you draw?
TOO LATE, INC. CASH BUDGET (in millions)
Q1
Q2
Q3
Q4
Beginning receivables
Sales
Cash collections
Ending receivables
Total cash collections
Total cash disbursements
Net cash flow
Beginning cash balance
Net cash inflow
Ending cash balance
Minimum cash balance
Cumulative surplus (deficit)
Q1
Q2
Q3
Q4
Sales
$210
$280
$260
$330
Total cash disbursement
190
240
350
220
Explanation / Answer
Q1
Q2
Q3
Q4
Beginning receivables
110
93
124
116
Sales
210
280
260
330
Cash collections
117
156
144
183
Ending receivables
93
124
116
147
Total cash collections
227
249
269
299
Total cash disbursements
-190
-240
-350
-220
Net cash flow
37
9
-81
79
Beginning cash balance
10
37
9
-81
Net cash inflow
27
-28
-90
160
Ending cash balance
37
9
-81
79
Minimum cash balance
10
10
10
10
Cumulative surplus (deficit)
27
-1
-91
69
Working Notes:
Computation of Cash Received and
Receivables for each Quarter
(On the basis of Assumption 2)
Sales
210
280
260
330
Receivables in Current Quarter Sales
93
124
116
147
Amounts received on Current Quarter sales
117
156
144
183
Assumptions:
Q1
Q2
Q3
Q4
Beginning receivables
110
93
124
116
Sales
210
280
260
330
Cash collections
117
156
144
183
Ending receivables
93
124
116
147
Total cash collections
227
249
269
299
Total cash disbursements
-190
-240
-350
-220
Net cash flow
37
9
-81
79
Beginning cash balance
10
37
9
-81
Net cash inflow
27
-28
-90
160
Ending cash balance
37
9
-81
79
Minimum cash balance
10
10
10
10
Cumulative surplus (deficit)
27
-1
-91
69
Working Notes:
Computation of Cash Received and
Receivables for each Quarter
(On the basis of Assumption 2)
Sales
210
280
260
330
Receivables in Current Quarter Sales
93
124
116
147
Amounts received on Current Quarter sales
117
156
144
183