Question

Built-Tight is preparing its master budget for the quarter ended September 30. Budgeted sales and cash payments for product costs for the quarter follow.

	July			August			September
Budgeted sales	$	55,000		$	71,000		$	57,000
Budgeted cash payments for
Direct materials		15,360			12,640			12,960
Direct labor		3,240			2,560			2,640
Factory overhead		19,400			16,000			16,400

Sales are 20% cash and 80% on credit. All credit sales are collected in the month following the sale. The June 30 balance sheet includes balances of $15,000 in cash; $44,200 in accounts receivable; and a $4,200 balance in loans payable. A minimum cash balance of $15,000 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning-of-the-month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and consist of sales commissions (10% of sales), office salaries ($3,200 per month), and rent ($5,700 per month).

1. Prepare a cash receipts budget for July, August, and September.

	BUILT-TIGHT Cash Receipts Budget For July, August, and September July August September Sales Less: ending accounts receivable Cash receipts from: Cash sales 0 0 0 Collections of prior month’s receivables Total cash receipts $0 $0 $0

2. Prepare a cash budget for each of the months of July, August, and September. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Enter your final answers in whole dollars.)

	BUILT-TIGHT Cash Budget For July, August, and September July August September Beginning cash balance Total cash available Cash payments for: Total cash payments 0 0 0 Preliminary cash balance Additional loan from bank Repayment of loan to bank Ending cash balance 0 0 0 Loan balance July August September Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month

Answer 1

1) Cash Receipts Budget
BUILT-TIGHT
Cash Receipts Budget
For July, August and September
	July	August	September
Cash Sales ($55,000*20/100); ($71,000*20/100); ($57,000*20/100)	$11,000	$14,200	$11,400
Cash Receipts from Credit sales:
From Accounts Receivable	$44,200
From July Sales ($55,000*80/100)		$44,000
From August Sales ($71,000*80/100)			$56,800
Total Cash Receipts	$55,200	$58,200	$68,200
2) Cash Budget
BUILT-TIGHT
Cash Budget
For July, August and September
	July	August	September
Beginning Cash Balance	$15,000	$15,000	$24,546
Add: Total Cash Receipts	$55,200	$58,200	$68,200
Total Cash Available (a)	$70,200	$73,200	$92,746
Cash Payments for:
Direct materials	$15,360	$12,640	$12,960
Direct labor	$3,240	$2,560	$2,640
Factory overhead	$19,400	$16,000	$16,400
Sales commissions ($55,000*10/100); ($71,000*10/100); ($57,000*10/100)	$5,500	$7,100	$5,700
Office salaries	$3,200	$3,200	$3,200
Rent	$5,700	$5,700	$5,700
Interest Expense ($4,200*1/100); ($4,200 - $2,760 = $1,440*1/100)	$40	$14
Total Cash Payments (b)	$52,440	$47,214	$46,600
Preliminary Cash Balance (a - b)	$17,760	$25,986	$46,146
Additional loan from bank
Repayment of loan to bank ($17,760 - $15,000)	($2,760)	($1,440)	$0
Ending Cash Balance	$15,000	$24,546	$46,146
Loan Balance:
	July	August	September
Loan balance - Beginning of month	$4,200	$1,440	$0
Additional loan (loan repayment)	($2,760)	($1,440)	$0
Loan balance - End of month	$1,440	$0	$0