Question

Preparing a Cash Budget

La Famiglia Pizzeria provided the following information for the month of October:

1. Sales are budgeted to be $153,000. About 85% of sales is cash; the remainder is on account.
2. La Famiglia expects that, on average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month.
3. Food and supplies purchases, all on account, are expected to be $101,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.
4. Most of the work is done by the owners, who typically withdraw $6,000 a month from the business as their salary. (Note: The $6,000 is a payment in total to the two owners, not per person.) Various part-time workers cost $7,300 per month. They are paid for their work weekly, so on average 90% of their wages are paid in the month incurred and the remaining 10% in the next month.
5. Utilities average $5,950 per month. Rent on the building is $4,100 per month.
6. Insurance is paid quarterly; the next payment of $1,600 is due in October.
7. September sales were $181,500 and purchases of food and supplies in September equaled $130,000.
8. The cash balance on October 1 is $2,147.

Required:

If required, round your answers to the nearest dollar.

1. Calculate the cash receipts expected in October.
$

2. Calculate the cash needed in October to pay for food purchases.
$

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Correct

3. Prepare a cash budget for the month of October.

La Famiglia Pizzeria
Cash budget
For the month of October
Beginning balance	$
Cash receipts
Cash available	$
Less:
Payments for food and supplies purchases	$
Owners' draw
Workers' wages
Utilities
Rent
Insurance
Total disbursements	$
Ending balance	$

Answer 1

1.

Cash Receipts
Cash Sales in October (85% of 153000)	130,050
Credit Sales collection of October Sales	16,065
Credit Sales collection of September Sales	7,623
Total receipts	153,738

october credit sales = 153000 x 15% = 22950

Credit sales collection of october sales = 22950 x 70%

Credit sales collection of Sep sales = Credit sales = 181500 x 15% = 27225 and cash collect on oct = 27225x28% = 7623

2.

Cash Payment to Purchase
25% of october month	25,250
75% of september month	97,500
Total cash needed	122,750

122750 needed for payment regarding purchase.

3

La Famigia Pizzeria
Cash Budget
For the month of october
Beginning Balance	2,147
Total Receipts	153,738
Cash Available	155,885
Less : Payments to food and supplies	122,750
Less : Owners Draw	6,000
Less : Workers Wages	7,300
Less : Utility	5,950
Less : Rent	4,100
Less : Insurance	1,600
Total Disbursment	147,700
Ending Balance	8,185

Workers wages will be 7300. Becuase monthly 7300. 90% of october and 10% of Septmber month will receive in October

Ending balance = Available cash - total disbursement