Piano Man, Inc., has a 32-day average collection period and wants to maintain a
ID: 2795662 • Letter: P
Question
Piano Man, Inc., has a 32-day average collection period and wants to maintain a minimum cash balance of $20 million, which is what the company currently has on hand. The company currently has a receivables balance of $182 million and has developed the following sales and cash disbursement budgets in millions:
Complete the following cash budget for the company. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Enter your answers in millions of dollars. Round your answers to the nearest whole million dollar amount (e.g., 32).)
Piano Man, Inc., has a 32-day average collection period and wants to maintain a minimum cash balance of $20 million, which is what the company currently has on hand. The company currently has a receivables balance of $182 million and has developed the following sales and cash disbursement budgets in millions:
Explanation / Answer
Ending receivables = Beginning receivables + Sales – Cash collections Each quarter has 90 days.The company has a 32-day collection period, Cash collection schedule will be like - 1st 32 days sales of this qtr Next 32 days sales of Last qtr Last 26 days sales of Last to last qtr Q1 Q2 Q3 Q4 Beginning receivables 182 259.3333 342.3333 418.7778 Sales 315 390 475 435 Cash collections 237.66667 307 398.5556 436.2222 Ending receivables 259.33333 342.3333 418.7778 417.5556 Total cash collections 237.66667 307 398.5556 436.2222 Total cash disbursements 265 340 605 375 Net cash inflow -27.33333 -33 -206.444 61.22222 Beginning cash balance 20 20 20 20 Net cash inflow -27.33333 -33 -206.444 61.22222 Ending cash balance -7.333333 -13 -186.444 81.22222 Minimum cash balance 20 20 20 20 Cumulative surplus (deficit) -27.33333 -33 -206.444 61.22222 Cash collection - Q1 Q2 Q3 Q4 Beginning receivables 182 Sales 315 390 475 435 Cash collections Beginning recievables - 125.66667 56.33333 Qtr 1 sales 112 112 91 Qtr 2 sales 138.6667 138.6667 112.6667 Qtr 3 sales 168.8889 168.8889 Qtr 4 sales 154.6667 Total cash collection 237.66667 307 398.5556 436.2222 Beginning balance represents sum of Last qtr sales for (90-32) and Last to last qtr sales for (90-32-32) i.e. - shows - 58 + 26 = 84 days assuming the last 2 qtr sales to be same balance to be received - in qtr 1 182 x (32+26)/84 = 125.6667 in qtr 2 182 x 26/84 = 56.33333 Please provide feedback……... thanks in advance……… :-)