Question

  

. Prepare a cash budget for January through March and for the first quarter in total. The company maintains a minimum cash balance of $70,000, and this was the balance in the cash account on January 1^st. Other expenses include $35,000 per month for rent, $24,000 per month for advertising, and $66,000 per month for depreciation. In addition, variable Selling & Administrative cost is $12 per unit sold, and the company paid a $20,000 dividend in February.

The company has an open line of credit with a bank and can borrow at an annual rate of 12%.
For simplification assume that all loans are made at the beginning of the month when borrowing is needed, and repayments are made at the end of a month if there is enough cash to make the payment. Also, interest associated with a loan is only paid at the time when that loan or a portion thereof is paid. Additionally, all loans and repayments (not the interest portion) can only be made in increments of $1000 and the company would like to pay its debts, or a portion thereof, as soon as it has enough cash to do so.

		Quarter 1
		January	February	March	Total
Budgeted units sales		70,000	100,000	60,000	230,000
Variable selling and administrative expense per unit			$                    -	$               -	$                  -
Total variable selling and administrative expense					$                  -
Fixed selling and administrative expenses
Advertising
Rent
Depreciation
Total fixed selling and administrative expenses
Total selling and administrative expenses
Less depreciation
Cash disbursements for selling and administrative expenses		$                     -	$                    -	$               -	$                  -

Answer 1

Solution

Quarter 1
	January	February	March	Total
Budgeted units sales	70000	100000	60000	230000
Variable selling and administrative expense per unit	$            12.00	$                12.00	$            12.00	$                12.00
Total variable selling and administrative expense	$ 840,000.00	$ 1,200,000.00	$ 720,000.00	$ 2,760,000.00
Fixed selling and administrative expenses
Advertising	$    24,000.00	$        24,000.00	$    24,000.00	$        72,000.00
Rent	$    35,000.00	$        35,000.00	$    35,000.00	$      105,000.00
Depreciation	$    66,000.00	$        66,000.00	$    66,000.00	$      198,000.00
Total fixed selling and administrative expenses	$ 125,000.00	$      125,000.00	$ 125,000.00	$      375,000.00
Total selling and administrative expenses	$ 965,000.00	$ 1,325,000.00	$ 845,000.00	$ 3,135,000.00
Less depreciation	$    66,000.00	$        66,000.00	$    66,000.00	$      198,000.00
Cash disbursements for selling and administrative expenses	$ 899,000.00	$ 1,259,000.00	$ 779,000.00	$ 2,937,000.00