Question

Cash Budget

The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budgetinformation:

	September		October		November
Sales	$146,000		$181,000		$232,000
Manufacturing costs	61,000		78,000		84,000
Selling and administrative expenses	51,000		54,000		88,000
Capital expenditures	_		_		56,000

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $7,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing 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 September 1 include cash of $55,000, marketable securities of $79,000, and accounts receivable of $163,100 ($128,000 from July sales and $35,100 from August sales). Sales on account for July and August were $117,000 and $128,000, respectively. Current liabilities as of September 1 include $7,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $22,000 will be made in October. Bridgeport’s regular quarterly dividend of $7,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $54,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculations.

Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
	September	October	November
Estimated cash receipts from:
Cash sales	$	$	$
Collection of accounts receivable
Total cash receipts	$	$	$
Less estimated cash payments for:
Manufacturing costs	$	$	$
Selling and administrative expenses
Capital expenditures
Other purposes:
Income tax
Dividends
Total cash payments	$	$	$
Cash increase or (decrease)	$	$	$
Plus cash balance at beginning of month
Cash balance at end of month	$	$	$
Less minimum cash balance
Excess or (deficiency)

Answer 1

Bridgeport Houseware Inc
Cash Budget
For the Three Months Ended nov 30th
	September	October	November
Estimated Cash Receipts
Cash Sales	$       14,600.00	$       18,100.00	$         23,200.00
Collection of Accounts Receivable	$   1,24,700.00	$   1,30,380.00	$     1,53,450.00
Total Cash Receipts	$   1,39,300.00	$   1,48,480.00	$     1,76,650.00
Less: Extimated Cash Payments
Manufacturing Cost	$       50,200.00	$       67,600.00	$         75,800.00
Selling and Administrative Expenses	$       51,000.00	$       54,000.00	$         88,000.00
Capital expenditure			$         56,000.00
Other Purposes
Income Tax		$       22,000.00
Dividends			$           7,000.00
Total Cash Payments	$   1,01,200.00	$   1,43,600.00	$     2,26,800.00
Cash Increase or (decrease)	$       38,100.00	$         4,880.00	$       (50,150.00)
Plus :Cash Balance at beginning of month	$       55,000.00	$       93,100.00	$         97,980.00
Cash balance at the End of the Month	$       93,100.00	$       97,980.00	$         47,830.00
Less: Minimum Cash Balance	$       54,000.00	$       54,000.00	$         54,000.00
Excess or (deficiency)	$       39,100.00	$       43,980.00	$         (6,170.00)

Working 1

Collection of Accounts Receivable
	September	October	November
Credit sales	$ 1,31,400.00	$    1,62,900.00	$   2,08,800.00
Collection of July sales	$      35,100.00
Collection of August sales	$      89,600.00	$       38,400.00
Collection of september sales		$       91,980.00	$       39,420.00
Collection of October sales			$   1,14,030.00
Total Collection from Receivables	$ 1,24,700.00	$    1,30,380.00	$   1,53,450.00

Working 2

Manufacturing Cost cash payments
	September	October	November
Total Manufacturing cost as given	$      61,000.00	$       78,000.00	$       84,000.00
Less: Non cash Expenses	$        7,000.00	$          7,000.00	$         7,000.00
	$      54,000.00	$       71,000.00	$       77,000.00
Paid in Current Month	$      43,200.00	$       56,800.00	$       61,600.00
Paid for Previous Month	$        7,000.00	$       10,800.00	$       14,200.00
Total Manufacturing Cost paid in cash	$      50,200.00	$       67,600.00	$       75,800.00