Question

Preparing a Cash Budget

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

Sales are budgeted to be $166,000. About 85% of sales are cash; the remainder are on account.

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.

Food and supplies purchases, all on account, are expected to be $113,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.

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.

Utilities average $5,950 per month. Rent on the building is $4,100 per month.

Insurance is paid quarterly; the next payment of $1,600 is due in October.

September sales were $181,500 and purchases of food and supplies in September equaled $130,000.

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.
$

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. Calculate the cash receipts expected in October.

Answer:$166,153
$

2. Calculate the cash needed in October to pay for food purchases.
Answer:$125, 750

3. Prepare a cash budget for the month of October

La Famiglia Pizzeria
Cash budget
For the month of October
	October
Beginning balance	$              2,147
Cash receipts	$        166,153
Cash available	$        168,300
Less:
Payments for food and supplies purchases	$        125,750
Owners' draw	$              6,000
Workers' wages	$              7,300
Utilities	$              5,950
Rent	$              4,100
Insurance	$              1,600
Total disbursements	$        150,700
Ending balance	$            17,600

Working Notes:

	Particulars	Sep	Oct
	Sales	$        181,500	$        166,000
	Cash Sales 85% of Sales	$        154,275	$        141,100
	Credit Sales (Sales- Cash sales)	$            27,225	$            24,900
	Credit sale collections @ 70% of Credit sales	$      19,057.50	$      17,430.00
	Collection of Previous month @ 28%		$              7,623
A	Cash receipts	$        173,333	$        166,153
	Purchases	$        130,000	$        113,000
	Payment to Purchases @ 25%	$            32,500	$            28,250
	Previous month payment @ 75%		$            97,500
B	Total payments for food and supplies purchases	$            32,500	$        125,750
	Workers wages @ 90% of $7,300	$              6,570	$              6,570
	Previous month wages @ 10% pf $7,300		$                  730
C	Total Wages paid	$              6,570	$              7,300