# BU121 Lecture Notes - Lecture 12: Cash Flow, Variable Cost

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18 Feb 2016
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BU121 – Lecture 12
Question Example
1. If you were able to produce in another country with a lower wage rate that would
decrease your variable cost from \$10 to \$5 per unit, should you drop your price from \$60
to \$45 if that would increase your volume from 200 to 300 units?
o60\$ price – 10\$ variable = 50\$ contribution x 200 units = 10000\$ total
contribution
o45\$ price – 5\$ variable = 40\$ contribution x 300 units = 12000\$ total contribution
oYes quantitative but moving productions overseas – is that a good idea?
Consider both
Entrepreneurial Finance – Cash Budgeting
Cash Budgeting
Beginning cash balance
+ Receipts *
= Total cash Available
- Disbursements *
= Cash Excess / (Deficiency)
Minimum cash balance desired
Borrowing req’d / surplus or repayment
Ending Cash Balance
Worksheet based on historical measures of amounts and timing of cash flows / what is
typical in industry
Example worksheet
You need to prepare cash budget for the months of June, July, August
Minimum cash balance requirement = 6000
Beginning cash balance in June = min, cash balance
Assume that sales are forecasted at 10000, 20000, 30000, 15000, 25000, and 20000
from april to September respectively
Assume also that you expect to collect 30% in month of sale, 60% in month following
sale, and 10% in the 2nd month after sale
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Assume that purchases are 75% of the next month’s sales
Assume also that you pay for 20% of purchases in the month of purchase, and 80% in
the month following
Example worksheet and Cash Budget
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\$10 USD/m
Billed \$120 USD annually
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