Question

The controller of Frizz D Ice Cream Co. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following information:           

	August	September	October
Sales	$610,000	$700,000	$825,000
Preparation Costs	320,000	350,000	400,000
Selling and administrative expenses	180,000	210,000	225,000
Capital Expenditures			140,000

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in full in the month following the sale and the remainder the next month. Depreciation, insurance, and property tax expense represent $30,000 of the estimated monthly preparation costs. The annual insurance premium is paid in July, and the annual property taxes are paid in November. Of the remainder of the preparation costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.

            Current assets as of August 1 include cash of $55,000, marketable securities of $85,000, and accounts receivable of $680,000 ($500,000 from July sales and $180,000 from June sales). Current liabilities as of August 1 include a $100,000, 10%, 90-day note payable due October 20 and $60,000 of accounts payable incurred in July for preparation costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $1,500 in dividends will be received in August. An estimated income tax payment of $42,000 will be made in September. Frizz D’s regular quarterly dividend of $15,000 is expected to be declared in September and paid in October. Management desires to maintain a minimum cash balance of $45,000.

Instructions

1. Prepare a monthly cash budget and supporting schedules for August, September, and October.

Answer 1

			RUPEES IN $
CASH BUDGET FOR AUGUST, SEPTEMBER,OCTOBER
Particulars	August	September	October
CASH INFLOW
OPENING CASH	55000	77500	110900
CASH SALES(W.K. 1)	61000	70000	82500
RCEIVED FROM DEBTORS(W.K. 2)	372000	529400	597600
DIVIDEND	1500
TOTAL	489500	676900	791000
CASH OUTFLOW
Preparation Costs	232000	314000	360000
Selling and administrative expenses	180000	210000	225000
Income tax payment		42000
quarterly dividend			15000
Capital expenditure			140000
current liabilities			10000
TOTAL	412000	566000	750000
CLOSING CASH END OF THE MONTH	77500	110900	41000
W.K. 1 CASH SALES(10% of its merchandise for cash)
AUGUST = $610000*10%= 61000
SEPTEMBER = $700000*10%= 70000
OCTOMBER = $825000*10%= 82500
W.K. 2 RECEIVED FROM DEBTORS			RUPEES IN $
PARTICULARS	August	September	October
TOTAL SALES (CREDIT)
(TOTAL SALES - CASH SALES)	549000	630000	742500
COLLECTED IN FOLLOWING MONTH	300000	329400	378000
COLLECTED IN NEXT MONTH	72000	200000	219600
TOTAL COLLECTION	372000	529400	597600
note:IF Management desires to maintain a minimum cash balance of $45,000. THEN MUST GROW CASH SALES OR OTHER SOURCES OF CASH