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	$250,000		$300,000		$315,000
Manufacturing costs	150,000		180,000		185,000
Selling and administrative expenses	42,000		48,000		51,000
Capital expenditures	_		_		200,000

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 $50,000 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 $40,000, marketable securities of $75,000, and accounts receivable of $300,000 ($60,000 from July sales and $240,000 from August sales). Sales on account for July and August were $200,000 and $240,000, respectively. Current liabilities as of September 1 include $40,000 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 $55,000 will be made in October. Bridgeport’s regular quarterly dividend of $25,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $50,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for September, October, and November.

Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
	September	October	November
Estimated cash receipts from:
	$fill in the blank c676f2fd6f8b035_2	$fill in the blank c676f2fd6f8b035_3	$fill in the blank c676f2fd6f8b035_4
	fill in the blank c676f2fd6f8b035_6	fill in the blank c676f2fd6f8b035_7	fill in the blank c676f2fd6f8b035_8
Total cash receipts	$fill in the blank c676f2fd6f8b035_9	$fill in the blank c676f2fd6f8b035_10	$fill in the blank c676f2fd6f8b035_11
Less estimated cash payments for:
	$fill in the blank c676f2fd6f8b035_13	$fill in the blank c676f2fd6f8b035_14	$fill in the blank c676f2fd6f8b035_15
	fill in the blank c676f2fd6f8b035_17	fill in the blank c676f2fd6f8b035_18	fill in the blank c676f2fd6f8b035_19
			fill in the blank c676f2fd6f8b035_21
Other purposes:
		fill in the blank c676f2fd6f8b035_23
			fill in the blank c676f2fd6f8b035_25
Total cash payments	$fill in the blank c676f2fd6f8b035_26	$fill in the blank c676f2fd6f8b035_27	$fill in the blank c676f2fd6f8b035_28
	$fill in the blank c676f2fd6f8b035_30	$fill in the blank c676f2fd6f8b035_31	$fill in the blank c676f2fd6f8b035_32
	fill in the blank c676f2fd6f8b035_34	fill in the blank c676f2fd6f8b035_35	fill in the blank c676f2fd6f8b035_36
Cash balance at end of month	$fill in the blank c676f2fd6f8b035_37	$fill in the blank c676f2fd6f8b035_38	$fill in the blank c676f2fd6f8b035_39
	fill in the blank	fill in the blank	fill in the blank
Excess or (deficiency)	$fill in the blank	$fill in the blank	$fill in the blank

2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?

The budget indicates that the minimum cash balance   be maintained in November. This situation can be corrected by   and/or by the   of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will   the minimum desired balance.

Answer 1

Answer :