Cash Budgets Essay

Length: 2 pages Sources: 3 Subject: Business Type: Essay Paper: #34921810

Excerpt from Essay :

Chester and Wayne Cash Budget Chester & Wayne Budget Analysis

After preparing the cash budget, including sales and expenses, for the Fourth Quarter of the year, it is important to review the information carefully. There are a number of trends and instances which are a cause of interest regarding the budget, especially in regards to the rising costs of goods and the decreasing margins. Thus, it is important to discuss such events with Mr. Chester and Mr. Wayne.

First, it is clear that the costs of goods are increasing, which is driving down the margin. In September, the costs of goods sold were $551,250. However, this number jumped to $638,120 in December. Yes, this was due to an increase in sales altogether; yet this also leaves the company vulnerable to rising costs of business as well. In this volatile economy, suppliers have begun raising prices. Yet, at the same time, it would be a mistake for Chester & Wayne to increase prices to make up for the lost margins because many of their competitors are keeping prices...


In fact, major food retailer Wal-Mart has such a dominating force in the market that it can negotiate and force supplier prices down, where Chester & Wayne cannot (Geller & Wohl, 2012). This creates a situation where Wal-Mart is allowed to have much lower prices without dipping too far into margins. Yet, Chester & Wayne are at the whim of suppliers, but increasing unit prices would leave them at a disadvantage to other competitors, like Wal-Mart. To compensate, there are other measures that can be taken. The company could raise its desired monthly cash balance to a higher amount, closer to $150,000 in order to have greater flexibility when prices of supplies rise. This would mean lowering monthly investments into marketable securities as needed when profits are high, which may have a long-term impact. However, it keeps the current margins at a more desirable amount during price increases with suppliers. Additionally, the executives were concerned about frequently occurring stock outs, where there was not enough inventory to fill rising demands. Due to this, they wanted to see what would happen if inventory levels were raised to 30% or 40% instead of the 25% of sales they were set at now. It is true that sales have been increasing with each passing moth, therefore demanding higher inventory amounts. Stock outs can be extremely costly, since they deny a company the ability to meet increasing demands for products (Kokemuller, 2014). This would ultimately help bump up inventory, but it…

Cite this Document:

"Cash Budgets" (2015, January 25) Retrieved June 1, 2023, from

"Cash Budgets" 25 January 2015. Web.1 June. 2023. <>

"Cash Budgets", 25 January 2015, Accessed.1 June. 2023,

Related Documents
Cash Budget and Target Cash Balance the
Words: 946 Length: 3 Pages Topic: Economics Paper #: 60004398

Cash budget and target cash balance The target cash balance is defined as the ideal cash amount a company intends to hold in its reserve at a given time. This figure seeks to strike a balance between the balance sheet costs of extremely little and too much cash. While a company with surplus cash at hand may misuse on investment opportunities, a company with poor cash will often be forced

Budget Building a Profit Plan
Words: 2893 Length: 10 Pages Topic: Business Paper #: 48166924

Operating expenses include selling and administrative expense. Ordinarily, a forecast or budget for selling expenses is prepared together with the sales budget or profit target because selling efforts such as promotions, commissions and salaries of the sales staff are directly related to sales. Selling expenses may either be variable or fixed. Administrative expenses include projected administrative costs for other than production or selling activities. These expenses are mostly composed of

Budget DQ1a. "I Don't Need
Words: 1073 Length: 3 Pages Topic: Economics Paper #: 89806186

Looking over a spreadsheet can clarify when to make larger purchases, such as waiting until the start of a new billing cycle, or negotiating better payment terms offered by suppliers and any creditors, especially when interest rates are volatile. Once the need for a budget is established then the organization can consider what type of budget it desires. For example, with zero-based budgeting, "all expenses must be justified for each

Budgeting According to Cash Flow
Words: 772 Length: 2 Pages Topic: Economics Paper #: 77058863

After considering the material provided by both the FSO Technologies and Bank of America tutorials, it becomes increasingly clear that the key to long term financial viability is projection and planning. In the case of the childcare center, the tutorial advised that once one has clearly mapped out a cash budget which compares expected cash inflows and outflows, one can begin to make meaningful incremental and longterm changes in spending and pricing. As the childcare center

Budgeting the Relevance of Budgets When It
Words: 769 Length: 2 Pages Topic: Economics Paper #: 16821175

Budgeting The relevance of budgets when it comes to the management of organizational operations cannot be overstated. In this text, I discuss the various types of budgets. In so doing, I will make use of a hypothetical company by the name ABC Industries -- a Texas-based manufacturing entity. ABC produces blankets. Types of Budgets Budgets can be classified in numerous ways. The classification approach I adopt in this case is largely founded on

Budgeting Is Not Only Useful for a
Words: 965 Length: 3 Pages Topic: Economics Paper #: 28139708

Budgeting is not only useful for a business organization but it is also useful for personal planning and spending. The existence of a well structured budget within an organization or a personal budget tells how well a person or the business is organized. From a business perspective regardless of the type and size a budget is an important recipe for success and smooth running of the business. According to Burrows and