Question

Cash Budget

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	$123,000		$149,000		$207,000
Manufacturing costs	52,000		64,000		75,000
Selling and administrative expenses	43,000		45,000		79,000
Capital expenditures	_		_		50,000

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 $8,000 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 $47,000, marketable securities of $66,000, and accounts receivable of $137,400 ($108,000 from July sales and $29,400 from August sales). Sales on account for July and August were $98,000 and $108,000, respectively. Current liabilities as of September 1 include $8,000 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 $18,000 will be made in October. Bridgeport’s regular quarterly dividend of $8,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $46,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Assume 360 days per year for interest calculations.

Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
	September	October	November
Estimated cash receipts from:
Cash sales	$12300	$14900	$20700
Collection of accounts receivable
Total cash receipts	$	$	$
Less estimated cash payments for:
Manufacturing costs	$	$	$
Selling and administrative expenses	43000	45000	79000
Capital expenditures	---------------	--------------	50000
Other purposes:
Income tax	---------------		--------------
Dividends	--------------	--------------
Total cash payments	$	$	$
Cash increase or (decrease)	$	$
Plus cash balance at beginning of month
Cash balance at end of month	$	$	$
Less minimum cash balance
Excess or (deficiency)	$	$	$

Answer 1

Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
	September	October	November
Estimated cash receipts from:
Cash sales	$12300	$14900	$20700
Collection of accounts receivable	$128580	$86310	$127080
Total cash receipts	$140880	$101210	$147780
Less estimated cash payments for:
Manufacturing costs	$43200	$53600	$64800
Selling and administrative expenses	43000	45000	79000
Capital expenditures	---------------	--------------	50000
Other purposes:
Income tax	---------------	$18000	--------------
Dividends	--------------	--------------	$8000
Total cash payments	$86200	$116600	$201800
Cash increase or (decrease)	$54680[140880-86200]	$-15390[101210-116600]	$-54020[147780-201800]
Plus cash balance at beginning of month	47000	101680	$86290
Cash balance at end of month	$101,680[54680+47000]	$86290[-15390+101680]	32270
Less minimum cash balance	46000	46000	46000
excess(deficiency)	55680	40290	-13730

1)sales

	September	october	november
cash sales	12300[123000*10%]	14900[149000*10%]	20700[207000*10%]
credit sales
receipt of july sales	108000	0	0
August	20580[29400*70%]	8820[29400*30%]
september		77490[123000-12300]*70%	33210[123000-12300]*30%
october			93870[149000-14900]*70%
Total credit sales collection	128580 [108000+20580]	86310 [8820+77490]	127080 [33210+93870]

2.DEDUCT 8000 FROM MAUFACTURING COST AS THE PAYMENT DOES NOT FALL WITHIN THE GIVEN PERIOD.

	SEPTEMBER	october	novemebr
manufacturing cost	52000	64000	75000
less insurance and non cash depreciation and property tax	8000	8000	8000
net cost	44000	56000	67000
cost of august	8000
September	35200[44000*80%]	8800[44000*20%]
october		44800[56000*80%]	11200[56000*20%]
november			53600[67000*80%]
Total cash paid for manufacturing cost	43200	53600	64800

3.