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	$125,000		$149,000		$199,000
Manufacturing costs	53,000		64,000		72,000
Selling and administrative expenses	44,000		45,000		76,000
Capital expenditures	_		_		48,000

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 $8,000 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 $48,000, marketable securities of $68,000, and accounts receivable of $139,000 ($109,000 from July sales and $30,000 from August sales). Sales on account for July and August were $100,000 and $109,000, respectively. Current liabilities as of September 1 include $8,000 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 $18,000 will be made in October. Bridgeport’s regular quarterly dividend of $8,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $47,000.

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:
	$	$	$
Total cash receipts	$	$	$
Less estimated cash payments for:
	$	$	$
Other purposes:
Total cash payments	$	$	$
	$	$	$
Cash balance at end of month	$	$	$
Excess or (deficiency)	$	$	$

2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?

The budget indicates that the minimum cash balance be maintained in November. This situation can be corrected by and/or by the of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will the minimum desired

Answer 1

Cash Budget
	September	October	November
Estimated cash receipts
Cash sales	12500	14900	19900
Collection of accounts receivable	106300	111450	127620
Toatl cash receipts	118800	126350	147520
Less: estimated cash payments
Manufacturing cost	44000	53800	62400
Selling & admonistrative expenses	44000	45000	76000
Capital expenditure			48000
Other purpose
Dividend			8000
Income tax		18000
Total cash payments	$88,000	$116,800	$194,400
Cash increase/(decrease)	$30,800	$9,550	($46,880)
Add: cash bal at beginning	48000	$78,800	$88,350
Cash bal at the end	$78,800	$88,350	$41,470
Add: min cash bal	$47,000	$47,000	$47,000
Excess/(deficiency)	$31,800	$41,350	($5,530)
ans 2 is correct

Schedule of Cash collection
	September	October	November	Total	July	August
Sales in value S	125000	149000	199000	473000
Cash sales C	12500	14900	19900	47300
Sales on account A=S-C	112500	134100	179100	425700	100000	109000
July sales 100000*30%	30000			30000
August sales (109000*.7)(109000*.3)	76300	32700		109000
Septemebr sales (70%,30%)*A		78750	33750	112500
Oct sales			93870	93870
Collection from accounts receivable	106300	111450	127620	139000
Schedule of cash payment of manufacturing cost
Manufacturing cost	53000	64000	72000
Less: Depreciation, Inurance & property taxes	-8000	-8000	-8000
Payment to be made for manufacturing expenses	45000	56000	64000	165000
For August manufactuirng cost	8000			8000
For Sep manufactuirng cost (P*80%),(P*20%)	36000	9000		45000
For Oct manufactuirng cost		44800	11200	44800
For NOv manufactuirng cost			51200	51200
Total B	44000	53800	62400	149000