Question

Cash Budget

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	$95,000		$123,000		$162,000
Manufacturing costs	40,000		53,000		58,000
Selling and administrative expenses	33,000		37,000		62,000
Capital expenditures	_		_		39,000

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 $6,000 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 $36,000, marketable securities of $51,000, and accounts receivable of $105,800 ($83,000 from July sales and $22,800 from August sales). Sales on account for July and August were $76,000 and $83,000, respectively. Current liabilities as of September 1 include $6,000 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 $15,000 will be made in October. Bridgeport’s regular quarterly dividend of $6,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $35,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for September, October, and November. 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:
Cash sales	$	$	$
Collection of accounts receivable
Total cash receipts	$	$	$
Less estimated cash payments for:
Manufacturing costs	$	$	$
Selling and administrative expenses
Capital expenditures
Other purposes:
Income tax
Dividends
Total cash payments	$	$	$
	$	$
Cash balance at end of month	$	$	$
Excess or (deficiency)	$	$	$

Answer 1

Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
	September	October	November
Estimated cash receipts from:
Cash Sales	9,500	12,300	16,200
Collection of Receivables	80,900	84,750	103,140
Total cash receipts	90,400	97,050	119,340
Less estimated cash payments for:
Merchandise Inventory	33,200	44,400	51,000
Selling and Admin expenses	33,000	37,000	62,000
Capex			39,000
Other purposes:
Income tax		15,000
Dividend			6,000
Total cash payments	66,200	96,400	158,000
Excess of receipts over payment	24,200	650	-38,660
Beginning cash balance	36,000	60,200	60,850
Cash balance at end of month	60,200	60,850	22,190
Minimum required	35,000	35,000	35,000
Excess or (deficiency)	25,200	25,850	-12,810
Cash Receipts Schedule
	September	October	November
Sales	95,000	123,000	162,000
cash Sales	9,500	12,300	16,200
Credit Sales Collection
70% in next month	58,100	59,850	77,490
30% in second month	22,800	24,900	25,650
Collection from credit sales	80,900	84,750	103,140
Merchandise Payment Schedule
	September	October	November
Purchases	40,000	53,000	58,000
Paid in same month	27,200	37,600	41,600
Next month	6,000	6,800	9,400
Total payment	33,200	44,400	51,000