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 $88,000 $114,000 $147,000 Manufacturing costs 37,000 49,000 53,000 Selling and administrative expenses 31,000 34,000 56,000 Capital expenditures _ _ 35,000 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 $9,000 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 $33,000, marketable securities of $48,000, and accounts receivable of $98,000 ($77,000 from July sales and $21,000 from August sales). Sales on account for July and August were $70,000 and $77,000, respectively. Current liabilities as of September 1 include $9,000 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 $14,000 will be made in October. Bridgeport’s regular quarterly dividend of $9,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $32,000.

Answer 1

  

WORKINGS FOR THE ABOVE FIGURES;

sales on account for the month of july is given as 70,000. It was mentioned that 70% of the sales on account is received in the next month and remaining in the following month. So the july's 70% of receipts were received in August and the remaining 30% of 70,000 = 21000 received in September.

It was mentioned that 10% of total sales were expected to receive by in cash in the same month of sale. Hence for September sales 88000*10%= 8800 and the same for October and November.

The remaining part of the total sales were sales on account.(Total sales - cash sales = Sales on Account). The rule stated for the receipts of sales on account 70% in the next month and 30% in the following month. Therefore, 88000-8800 = 79200

79200 are sales on account of September. 70% of 79200 = 53900 is received in the next month i.e., October and the same logic applies to the Month of October and November also.

Month - total sales	sales on account	receipts in next month	receipts in following month
September-88000	79200 (88000-10%)	79200* 70% = 55440	79200* 30% = 23760
October-114000	114000-10% = 102600	102600* 70% = 71820 received in november	102600*30% = 30870 received in december
November	147000-10% = 132300	receiveed in december	received in january

Disbursements workings

September 1 include $9,000 of accounts payable incurred in August for manufacturing expenses. The provision in the question stated that manufacturing expenses 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Hence the payable for august is paid in September.

Manufacturing costs included Depreciation, insurance, and property tax expense represent $9,000 of the estimated monthly manufacturing costs. They were to be paid in January and December. Hence does not form part in current cash budget.

Of the remaining manufacturing costs 80% paid in the same month and remaining in next month

Month	80% paid in same month	20% paid next month
September month Manufacturing Expenses	9000 from august + 37000-9000 (depreciation and other charge) = 28000*80% = 22400	28000*20% = 5600
October	49000-9000 (dep and other) = 40000 40000*80% = 32000	40000*20% = 8000
november	53000-9000 = 44000 * 80% =35200	44000*20% = 8800

Company wants to maintain a minimum cash balance of 32000 every month. So in November the company borrowed a sum of 6280 to bring the cash balance to the required amount.

Hope that helped. Please share your feedback. Thank you.