Question

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 budget information:

	September		October		November
Sales	$92,000		$109,000		$145,000
Manufacturing costs	39,000		47,000		52,000
Selling and administrative expenses	32,000		33,000		55,000
Capital expenditures	_		_		35,000

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 $35,000, marketable securities of $50,000, and accounts receivable of $103,200 ($81,000 from July sales and $22,200 from August sales). Sales on account for July and August were $74,000 and $81,000, 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 $13,000 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 $34,000. 1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Assume 360 days per year for interest calculations.

Answer 1

Cash Budget

	September	October	November
Estimated cash receipts from:
Cash sale	$92000	$109000	$145000
Sales on account (Note 1)	96540	64620	93,510
Total cash receipts	$188,540	$173,620	238,510
Less estimated cash payments for:
Manufcaturing costs (note 2)	32600	38400	44000
Selling and administrative expenses	32000	33000	55000
Capital expenditures			35000
Other purposes:
Income tax payment		13000
Dividend			7000
Total cash payments	$64600	$84400	$141000
Excess of receipts over payment	$123,940	$89,220	$97510
Cash balance at the beginning of month	35000	158940	214160
Cash balance at end of month	$158940	$248160	$311670
Minimum balance	34000	34000	34000
Excess or (deficiency)	$124940	$214160	$277670

Note 1: Cash receipts from Accounts Receivable

	September	October	November
Receipts from sale of:
July	$81000
August	15,540[22200*0.70 ]	6660 [22200*0.30]
September		57960 [82800*0.70]	24840 [82800*0.30]
October			68670 [98100*0.70]
Total collection	$96540	$64620	$93510

Note 2: Cash payment for Manufacturing cost

	September	October	November
Cash manufacturing cost	$32000	$40000	$45000
Cash payment for the month of:
August	$7000
September	25600	6400
October		32000	8000
November			36000
Total payment	$32600	$38400	$44000