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Prepare a cash budget (4-5 pages) for a manufacturing company and a memo to new management (2-3 pages) that explains the purpose of a cash budget and its relationship to operational

 

Prepare a cash budget (4-5 pages) for a manufacturing company and a memo to new management (2-3 pages) that explains the purpose of a cash budget and its relationship to operational goals.

Introduction

This assessment will give you the opportunity to construct a complete budget for the manufacturing operations of a fictional company called the Spicer Corporation. In doing so, you will practice analyzing budget practices and techniques.

Demonstration of Proficiency

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies through corresponding scoring guide criteria:

  • Competency 2: Analyze budgeting practices in organizations.
    • Explain how the component budgets function within the complete annual budget.
  • Competency 3: Apply appropriate budgeting techniques for planning, executing, and controlling.
    • Create a complete annual budget.
  • Competency 4: Apply quantitative models to create and manage budgets and forecasts and evaluate budget performance.
    • Create the sales budget.
    • Create the purchasing budget.
    • Create the payments budget.
    • Create the cash receipts budget.
  • Competency 5: Communicate in a manner that is professional and consistent with expectations for members of the business professions.
    • Communicate in a manner that is professional and consistent with expectations for members of the business professions.

Scenario

Cash budgets forecast cash needs to achieve operational goals, especially in terms of expected financing. For this assessment, you will act as a controller at a manufacturing company called the Spicer Corporation and your task will be to prepare a cash budget and an associated memo.

Your Role

You are a controller working for the vice president of finance at a manufacturing company called Spicer Corporation.

Requirements

The vice president has requested you create a cash budget (4–5 pages) for the coming year:

  • Use the Cash Budgeting Template [XLSX].
  • Include a supplement schedule for cash receipts for the coming year.
  • Assume management wants to maintain a minimum cash balance of $50,000.

When you complete the cash budget, include the component parts:

  • Sales budget.
  • Purchasing budget.
  • Payments budget.
  • Cash receipts budget.

In addition to the cash budget, the vice president has also requested that you prepare a memo to management (2–3 pages) that explains the purpose of a cash budget, its relationship to operational goals, and the process you performed to create it. 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.

Deliverable Format

Since the vice president of finance has requested these documents, you should make the cash budget and associated memo as clear, well-organized, and readable as possible. The vice president has requested the memo for management be 2–3 pages so that you have enough space to provide some scholarly and/or professional context.

  • Communication: Communicate in a manner that is scholarly, professional, and consistent with the needs and expectations of senior corporate leadership and other stakeholders. For this scenario, assume the vice president of finance expects original work, critical thinking, and scholarly sources. Your writing must be free of errors that detract from the overall message.
  • The memo is a professional document and should therefore follow the corresponding MBA Academic and Professional Document Guidelines, including single-spaced paragraphs.
  • Resources: Incorporate at least two resources that are scholarly and/or professional. So that your imaginary vice president of finance can locate more information about cash budgeting, include a reference page at the end of your report.
  • Budget length: According to template.
  • Memo length: Minimum of 2–3 pages, not including reference pages.
  • Font and font size: Times New Roman, 12 pt.

Faculty will use the scoring guide to review your deliverable as if they were your immediate supervisor. Review the scoring guide prior to developing and submitting your assessment.

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Accounting Memo Template

TO: Addressed to appropriate audience

FROM: Enter you name

DATE: Enter the date

SUBJECT: Enter an appropriate but brief statement for the subject

[ Instructions: 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 3 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.

The body of the memo should be single-spaced with double spacing between paragraphs. Be sure to open with an introduction explaining what the memo will provide.

Source material should be cited according to APA guidelines. A separate reference page should be included, following the memo.

Be sure to note if there are attachment or appendices included. For this course, these would be the completed budgeting schedules and/or calculations.

No signature line is required for the memo.]

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Part A

ACC5610 & ACC-FPX5610: Budgeting Planning and Control
Assessment 4: Cash Budgeting Worksheet
Part A Input values
Spicer Corporation would like to prepare a cash budget in order to determine the company's financing needs for the
upcoming year. The beginning cash balance is $161,250. Company name Spicer Corporation
The sales for the upcoming year is as follows: Year end December 31, 20XX
Spicer Corporation Spicer Corporation
Sales Budget for the Year Ending December 31, 20XX Sales Budget for the Year Ending December 31, 20XX
First Quarter Second Quarter Third Quarter Fourth Quarter 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Projected number of units to be sold 1,525 1,675 1,775 1,550 Projected number of units to be sold 1,525 1,675 1,775 1,550
Sales price per unit $ 275 $ 275 $ 275 $ 275 Sales price per unit $ 275 $ 275 $ 275 $ 275
Projected revenue $ 419,375 $ 460,625 $ 488,125 $ 426,250 Projected revenue $ 419,375 $ 460,625 $ 488,125 $ 426,250
All sales are on account. It is reported that 65% of the accounts receivable is collected in the quarter of the sale and Spicer Corporation
35% in the quarter after the sale. The beginning accounts receivable is $142,000. Operating Expenses for the Year Ending December 31, 20XX
All the purchases are made on account. The company pays 100 percent of the accounts payable each quarter. The 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
purchases are related to the inventory needed to sell each month. On an average, the inventory costs $195 per unit Salaries and wages $ 55,625 $ 55,450 $ 54,675 $ 56,285
to produce. It is estimated that enough inventory is purchased each quarter to cover the projected quarterly sales only. Advertising 1,200 1,500 900 2,000
The beginning accounts payable is $0. Utilities 2,700 2,700 2,700 2,700
Rent 6,000 6,000 6,000 6,000
Additional quarterly expenses include the following: Total $ 65,525 $ 65,650 $ 64,275 $ 66,985
Spicer Corporation
Operating Expenses for the Year Ending December 31, 20XX Beginning cash balance $161,250
Beginning accounts receivable balance $142,000
First Quarter Second Quarter Third Quarter Fourth Quarter % of accounts receivables collected in the 65%
Salaries and wages $ 55,625 $ 55,450 $ 54,675 $ 56,285 quarter of the sale
Advertising 1,200 1,500 900 2,000 % of accounts receivables collected in the 35%
Utilities 2,700 2,700 2,700 2,700 quarter after the sale
Rent 6,000 6,000 6,000 6,000 Inventory cost per unit $195
Total $ 65,525 $ 65,650 $ 64,275 $ 66,985 Note payable $165,000
Annual interest rate on note payable 6%
On the balance sheet, Spicer Corporation reports a note payable of $165,000. The principal plus interest is due on Cost of new machine $50,000
April 30. Until then, interest payments are made each month. The note has an annual interest rate of 6%. Minimum cash balance $50,000
Line of credit borrowings/repayment $10,000
It is projected that in October of the current year, Spicer Corporation will need to purchase a new machine in order to Minimum surplus for repayment of line of credit $5,000
replace an outdated machine. The new machine will cost $50,000. The purchase is expected to be made with cash. Annual interest rate on line of credit 4%
Amount of line of credit (in millions of dollars) $1
Spicer Corporation currently has a line of credit of $1 million that

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