CHAPTER 30

CASH MANAGEMENT
Problem 1
KHANNA MANUFACTURING COMPANY
CASH BUDGET
For the period from January to June 1998
Sales
Credit sales
Collections:
Cash
First month

70%

Dec
60,000
42,000

30%
70%

Total Collections
Purchases
Payments:
Preceding month

Jul
108000
75,600

25,200
42,000

32,400
75,600

46,800 39,600
58,800 109,200

68,400 86,400 32,400

92,400 159,600 201,600

67,200 105,600 148,800 160,800 246,000 234,000 108,000

75%
100%

Total Payments

Total Collections (A)

Less: Disbursement
Payments for purchases
Wages & salaries
Rent
Others

Jan
Feb
Mar Apr
May
Jun
84,000 156,000 132,000 228,000 288,000 108000
58,800 109,200 92,400 159,600 201,600 75,600

63,000 117,000

99,000 171,000 216,000

81,000

117,000

99,000 171,000 216,000

81,000

81,000

117,000

99,000 171,000 216,000

81,000

81,000

67,200 105,600 148,800 160,800 246,000 234,000

99,000 171,000 216,000
9,600
9,600
9,600
2,400
2,400
2,400
1,560
1,320
2,280

81,000
9,600
2,400
2,880

81,000
9,600
2,400
1,080

Total Disbursement (B)

129,840 112,560 184,320 230,280

95,880

94,080

Surplus/(Deficit) [A-B]
Opening cash balance
Total cash
Current borrowing
Interest on borrowing
Closing cash balance

(62,640) (6,960) (35,520) (69,480) 150,120 139,920

84,480 21,840 14,880
1,360
1,550 151,670
21,840 14,880 -20,640 -68,120 151,670 291,590
0
0 22,000 70,000
0
0
0
0
0
330
21,840 14,880
1,360
1,550 151,670 291,590

1%

Cumulative borrowing
Cumulative interest
Notes:
Borrowing rate

117,000
9,600
2,400
840

0
0
Annual Monthly
18%
0.015

0
0

22,000
0

92,000
330

92,000
330

92,000
330

81,000

I. M. Pandey, Financial Management, 9th Edition, Vikas.

Problem 2
Kay Company
Cash Budget
For the period January to March 19..
Sales
Credit sales
Collections:
Cash
First month

20%

Dec
520,000
104,000

80%
20%

Total Collections
Purchases
Payments:
First month

40%

208,000

40%

Jan
500,000
100,000

Feb
Mar
600,000 750,000
120,000 150,000

400,000
104,000

480,000 600,000
100,000 120,000

504,000

580,000 720,000

200,000

240,000 300,000

208,000

200,000 240,000

Total Payments

208,000

200,000 240,000

Total Collections (A)

Less: Disbursement
Payments for purchases
Salaries
Dividend
Misc. expense
Bills payable
Capital expenditure

504,000

580,000 720,000

208,000
280,000
75,000
15,000
0
0

200,000 240,000
280,000 280,000
0
0
15,000 15,000
36,000
0
80,000 190,000

Total Disbursement (B)

578,000

611,000 725,000

Surplus/(Deficit) [A-B]
Opening cash balance
Total cash
Interest income (exp.)
Current borrowing
Current investment
Closing cash balance

(74,000) (31,000) (5,000)

500,000 500,000 500,000
426,000 469,000 495,000
0
1,110
1,592
74,000
32,110
6,592
0
0
0
500,000 500,000 500,000

Cumulative investment/(borrowing)
Cumulative interest income/(exp)
Minimum cash balance
Borrowing rate
Lending

74,000
0
500,000
Annual Quarterly Monthly
18%
0.045
0.015
15%
0.0375
0.0125

106,110 112,702
1,110
2,702

Ch. 30: Cash Management

Problem 3
Kamp Manufacturing Company
Cash Budget
For the period May to July
Sales
Credit sales
Collections:
Cash
First month
Second month
Total Collections
Purchases
Payments:
First month
Second month
Total Payment
Total Collections (A)
Less: disbursement
Payments for manufacturing
Fixed operating expenses
Variable operating expenses
Interest
Advance taxes
Capital expenditure
Total Disbursement (B)
Surplus/(Deficit) [A-B]
Opening cash balance
Total cash
Current borrowing

Jan
Feb
Mar
Apr
May
75,500 75,000 90,000 90,000 105,000
40% 30,200 30,000 36,000 36,000 42,000

Jun
120,000
48,000

Jul
150,000
60,000

60%
50%
50%

63,000
18,000
18,000
99,000
78,750

72,000
21,000
18,000
111,000
90,000

90,000
24,000
21,000
135,000
112,500

54,000
13,500
67,500

63,000
13,500
76,500

72,000
15,750
87,750

99,000

111,000

135,000

67,500
15,000
10,500

76,500
15,000
12,000

87,750
15,000
15,000
27,000
15,000

93,000
6,000
30,000
36,000
0

60,000
163,500
-52,500
36,000
-16,500
13,500

159,750
-24,750
30,000
5,250
24,750

36,000

30,000

30,000

13,500

38,250

75% 56,625 56,250 67,500 67,500

80%
20%

10%
12%

Closing cash balance

Cumulative borrowing
Minimum cash balance

30,000

Problem 4
A. Average credit sales (Rs)
B. Working days in a year
C. Sales per day (Rs) [A/B]
D. Processing time saved (days)
E. Amount (Rs) [C x D]
F. Interest rate
G. Interest saved (Rs) [E x F]

1,500,000
300
5,000
2
10,000
18%
1,800

I. M. Pandey, Financial Management, 9th Edition, Vikas.

Problem 5
A. Daily collections (Rs)
B. Reduction in float (days)
C. Amount (Rs) [A x B]
D. Minimum balance with bank (Rs)
E. Opportunity cost
F. Net interest saving (Rs) [(C - D) x E ]

200,000
4
800,000
400,000
15%
60,000

G. Fixed fee (Rs)

H. Net interest saving (Rs) [C x E - G]

20,000
100,000

Problem 6
A. Daily collections (Rs)
B. Required rate of return
C. Administration time (days)
D. Total opportunity cost (Rs) [A x B x C]

500,000
10%
6
300,000

E. Reduction in admin. time (days)

F. Reduced cash balance (Rs) [(C - E) x A]

3
1,500,000

Problem 7
A. Annual turnover (Rs)
B. Daily turnover (Rs)
C. Reduction in collection time (days)
D. Amount (Rs) [B x C]
E. Borrowing rate
F. Net savings (Rs)

97,000,000
269,444
2
538,889
18%
63,050

Problem 8
A. Amount to be transferred (Rs)
B. Mailing cost (Rs)
C. Transit time (days)
D. Opportunity cost
E. Total cost (Rs) [B + (A x C x D/365)]

1,500,000
10
10
12%
4,942