Question

Danner Company expects to have a cash balance of $53,100 on January 1, 2020. Relevant monthly budget data for the first 2 months of 2020 are as follows.

Collections from customers: January $100,300, February $177,000.

Payments for direct materials: January $59,000, February $88,500.

Direct labor: January $35,400, February $53,100. Wages are paid in the month they are incurred.

Manufacturing overhead: January $24,780, February $29,500. These costs include depreciation of $1,770 per month. All other overhead costs are paid as incurred.

Selling and administrative expenses: January $17,700, February $23,600. These costs are exclusive of depreciation. They are paid as incurred.

Sales of marketable securities in January are expected to realize $14,160 in cash. Danner Company has a line of credit at a local bank that enables it to borrow up to $29,500. The company wants to maintain a minimum monthly cash balance of $23,600.

Prepare a cash budget for January and February.

Answer 1

Danner Company
CASH BUDGET
	January	February
Beginning cash balance	$    53,100	$    32,450
Add. Collections from customers	$ 100,300	$ 177,000
Sale of Marketable Securities	$    14,160
Total cash available	$ 167,560	$ 209,450
Less. Cash disbursements
Payment to suppliers for inventory	$    59,000	$    88,500
Payment for Direct labor	$    35,400	$    53,100
Manufacturing overhead	$    23,010	$    27,730
Selling and Administrative expenses	$    17,700	$    23,600
Total cash disbursements	$ 135,110	$ 192,930
Deficiency of cash available over disbursements	$    32,450	$    16,520
Borrowings	$             -	$      7,080
Ending cash balance	$    32,450	$    23,600

Manufacturing overhead are taken without depreciation of $1770

For January = $24780-$1770 =$23010

For February = $29500-$1770 = $27730

Cash borrowing will be as Available cash after disbursements will $16520

But as Darren is to maintain a minimum balance of $23600

so Borrowings will be + $23600-$16520 =$7080

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