Question

Shamrock Corporation is projecting a cash balance of $31,000 in its December 31,2021 , balance sheet. Shamrock's schedule of expected collections from customers for the first quarter of 2022 shows total collections of $184,000. The schedule of expected payments for direct materials for the first quarter of 2022 shows total payments of $37,000. Other information gathered for the first quarter of 2022 is as follows: sale of equipment $3,000; direct labour $79,000, manufacturing overhead $38,000; selling and administrative expenses $41,000; and purchase of securities $16,000. Shamrock wants to maintain a balance of at least $27,000 cash at the end of each quarter. Prepare a cash budget for the first quarter.

Answer 1

Shamrock Corporation's cash budget reveals that the company is projected to have a cash shortfall by the end of the first quarter of 2022, with an ending cash balance of $7,000, which is below the desired $27,000 minimum. Total cash receipts, including the sale of equipment, are expected to be $187,000, while disbursements are projected at $211,000. To avoid shortage, Shamrock must consider additional funding or cost-reduction measures.

Step-by-step explanation:

Cash Budget for Shamrock Corporation - First Quarter of 2022

To prepare a cash budget for Shamrock Corporation for the first quarter of 2022, we need to consider the company's beginning cash balance, expected cash receipts (collections from customers), expected cash disbursements (payments), and any additional cash inflows or outflows anticipated during the quarter to ensure that the company maintains its desired minimum cash balance of $27,000.

Beginning Cash Balance (as of December 31, 2021): $31,000

Total Expected Collections from Customers: $184,000

Total Expected Payments for Direct Materials: $37,000

Direct Labour Payments: $79,000

Manufacturing Overhead: $38,000

Selling and Administrative Expenses: $41,000

Sale of Equipment: +$3,000

Purchase of Securities: -$16,000

The total expected cash receipts for the quarter, including the sale of equipment, amount to $187,000 ($184,000 + $3,000). The total expected cash disbursements, including all expenses and purchase of securities, are $211,000 ($37,000 + $79,000 + $38,000 + $41,000 + $16,000). To calculate the ending cash balance, we will subtract the total disbursements from the total beginning balance plus receipts ($31,000 + $187,000 - $211,000), resulting in an ending cash balance of $7,000. However, this falls short of the desired minimum balance of $27,000.

To meet the desired minimum cash balance by the end of the first quarter, Shamrock Corporation will need to explore additional funding sources or reduce its cash outflows. This might include delaying the purchase of securities or find additional cost savings in other areas.