Question

1) Bustillo Company operates sight-seeing buses. Management has identified two cost drivers—the number of buses in operation and the number of passengers served —that it uses in its budgeting and performance reports. Data concerning the company’s cost formulas appear below:

	Fixed Cost per Month			Cost per Bus			Cost per Passenger
Vehicle operating costs	$	6,800		$	476		$	4.5
Advertising	$	2,500
Administrative costs	$	5,300		$	38		$	1.5
Insurance	$	3,900

For example, vehicle operating costs should be $6,800 per month plus $476 per bus plus $4.5 per passenger. The company’s sales revenue should average $31 per passenger. In July, the company operated 54 buses and served a total of 3,300 passengers. How much is the company’s flexible budget operating income for July?

2)

A cash budget for the first three quarters of Brister Incorporated is given below (000 omitted). The company requires a minimum cash balance of at least $5,000 to start each quarter. If necessary, the company will borrow money from its bank to maintain this balance. The company will pay no interest in Quarters 1, 2, and 3. It will repay as much of its borrowings as possible as soon as it has more than $5,000 in cash in a given quarter. Suppose the company starts the first quarter with no bank debt. How much total bank debt does the company expect to have at the end of the third quarter?

Cash Budget	Quarter (000 omitted)
	1	2	3
Cash balance, beginning	$9	?	?
Add collections from customers	88	127	88
Total cash available	?	?	?
Less disbursements:
Purchase of inventory	55	65	65
Selling and administrative expenses	40	45	51
Equipment purchases	8	10	11
Dividends	2	2	2
Total disbursements	?	?	?
Excess (deficiency) of cash available over disbursements	?	?	?
Financing:
Borrowings	?	?	?
Repayments	?	?	?
Total financing	?	?	?
Cash balance, ending	?	?	?

Answer 1

Ques 1

sales revenue	$                  102,300.00
31*3300
vehicle operating costs	$                    47,354.00
6800+476*54+4.5*3300
advertising	$                       2,500.00
administrative costs	$                    12,302.00
5300+38*54+1.5*3300
insurance	$                       3,900.00
operating costs	$                    66,056.00
operating income	$                    36,244.00

Ques 2

cash budget	Quarter
	1	2	3
cash balance	9	15	5
add:collections from customers	88	127	88
total cash available	97	142	93
less:disbursements
purchase of inventory	55	65	65
selling and administrative expenses	40	45	51
equipment purchases	8	10	11
dividends	2	2	2
total disbursements	105	122	129
excess (deficiency)	-8	20	-36
financing:
borrowings	23		41
repayments		15
total financing	23	-15	41
cash balance,ending	15	5	5
Total debt after end of third quarter	49
23-15+41