Question

Martin Company expects to have a cash balance of $135,100 on January 1, 2020. Relevant monthly budget data for the first 2 months of 2020 are as follows:

●		Collections from customers: January $249,800, February $442,100.
●		Payments for direct materials: January $156,600, February $246,700
●		Direct labor: January $91,700, February $136,600. Wages are paid in the month they are incurred.
●		Manufacturing overhead: January $61,700, February $75,200. These costs include depreciation of $4,900 per month. All other overhead costs are paid as incurred.
●		Selling and administrative expenses: January $44,600, February $59,300. These costs are exclusive of depreciation. They are paid as incurred.
●		Sales of marketable securities in January are expected to realize $35,200 in cash. Martin Company has a line of credit at the local bank that enables it to borrow up to $74,700. The company wants to maintain a minimum monthly cash balance of $59,300.

(a)

Prepare a cash budget for January and February.

Answer 1

Solution: Martin Company

Cash Budget

For January and February Month

	January	February
Beginning Cash Balance	$135,100	$70,400
Add: Receipts
Collections from customers	$249,800	$442,100
Sale of Marketable Securities	$35,200	$0
Total Receipts	$285,000	$442,100
Total Available Cash	$420,100	$512,500
Less: Disbursements
Direct Materials	($156,600)	($246,700)
Direct Labor	($91,700)	($136,600)
Manufacturing Overhead (Note - 1)	($56,800)	($70,300)
Selling and Administrative Expenses	($44,600)	($59,300)
Total Disbursements	($349,700)	($512,900)
Excess (Deficiency) of Available Cash over Cash Disbursements	$70,400	($400)
Financing
Add: Borrowings	$0	$59,700
Less: Repayments	$0	$0
Ending Cash Balance	$70,400	$59,300

Note:

1)Manufacturing Overhead is been shown in the Cash Budget excluding Depreciation.

Therefore, Manufacturing Overhead for the month of January = $61,700 - $4,900(Depreciation) = $56,800

Manufacturing Overhead for the month of February = $75,200 - $4,900(Depreciation) = $70,300

2)Ending Cash Balance for the Month of January becomes the Beginning Cash Balance for the Month of February

3)There is a deficiency of Cash for the month of February for Martin Company by ($400). In order to maintain the ending cash balance, Martin Company can borrow from the local bank a sum of $59,700 to maintain the ending balance of $59,300 (Martin Company can borrow a maximum amount of $74,700 from the local bank)

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