Good cash management is impossible without an analysis of the cash collections

Full Answer Section

• Lease payments $10,000
• Miscellaneous costs $5,000
• Net cash flow $-15,000

• Cash on hand, beginning of month $50,000
• Collections from sales:
  • Month of sale 20% * $0 = $0
  • Month following sale 60% * $275,000 = $165,000
  • Second month following sale 20% * $275,000 = $55,000
• Total cash collections $220,000
• Payments for raw materials and labor: $240,000
• Administrative salaries $30,000
• Lease payments $10,000
• Miscellaneous costs $5,000
• Net cash flow $-15,000

• Cash on hand, beginning of month $50,000
• Collections from sales:
  • Month of sale 20% * $275,000 = $55,000
  • Month following sale 60% * $275,000 = $165,000
  • Second month following sale 20% * $275,000 = $55,000
• Total cash collections $405,000
• Payments for raw materials and labor: $220,000
• Administrative salaries $30,000
• Lease payments $10,000
• Miscellaneous costs $5,000
• New plant investment $23,000
• Net cash flow $107,000

• Cash on hand, beginning of month $405,000
• Collections from sales:
  • Month of sale 20% * $275,000 = $55,000
  • Month following sale 60% * $275,000 = $165,000
  • Second month following sale 20% * $275,000 = $55,000
• Total cash collections $445,000
• Payments for raw materials and labor: $240,000
• Administrative salaries $30,000
• Lease payments $10,000
• Miscellaneous costs $5,000
• Net cash flow $95,000

• Cash on hand, beginning of month $445,000
• Collections from sales:
  • Month of sale 20% * $312,000 = $62,400
  • Month following sale 60% * $312,000 = $187,200
  • Second month following sale 20% * $312,000 = $62,400
• Total cash collections $312,000
• Payments for raw materials and labor: $225,000
• Administrative salaries $30,000
• Lease payments $10,000
• Miscellaneous costs $5,000
• Net cash flow $70,400

• Cash on hand, beginning of month $312,000
• Collections from sales:
  • Month of sale 20% * $417,000 = $83,400
  • Month following sale 60% * $417,000 = $250,200
  • Second month following sale 20

Sample Solution

• Cash on hand, beginning of month $50,000
• Collections from sales:
  • Month of sale 20% * $0 = $0
  • Month following sale 60% * $275,000 = $165,000
  • Second month following sale 20% * $275,000 = $55,000
• Total cash collections $220,000
• Payments for raw materials and labor: $220,000
• Administrative salaries $30,000