Reference no: EM132953616

At your firm you are responsible for developing a monthly cash budget (forecast) for the next 3 months. The dollar amounts are in 000s (thousands). Here are the inputs to your model:

• Sales at the end of month 1: $225 (assume month 1 is the first month for the business)
• Growth in sales month over month (i.e. from month 1 to 2 and from month 2 to 3): +$125
• Cash balance at the beginning of month 1 (i.e. today): $200
• Cost of Sales is 70%
• Pay bills immediately
• Half of monthly sales are paid immediately in cash and the other half of monthly sales takes one month to collect from receivables
• Maintains 2 months - worth of sales as inventory (assume you have already invested enough inventory for month 1)
• Maintains a cash balance equal to 20% of monthly sales for contingencies (i.e. emergencies)

Make a monthly forecast showing all the applicable items including monthly operating cash flow, cash balances (beginning and ending), required cash balance and any surplus/deficit. Based on your forecast, what do you recommend to your boss about cash flow requirements? You must determine if there will be a surplus or deficit and what would be your recommended course of action.