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)

Correct answer iconYour answer is correct.

Prepare a cash budget for January and February.

B). Martin Company’s chief financial officer feels that it is important to have data for the entire quarter especially since their financial forecasts indicate some difficult economic periods in the coming year. March information has been budgeted as follows:

●		Collections from customers: $379,100
●		Payments for direct materials: $212,100
●		Direct labor: Wages paid in March $113,800
●		Manufacturing overhead: $63,800. This includes the monthly depreciation of $4,900.
●		Selling and administrative expenses: $51,900. This cost is exclusive of depreciation.
●		Marketable securities of $49,600 can be sold if needed for additional cash.

Prepare a cash budget for March assuming that the company does not sell the marketable securities.

Answer 1

Martin Company	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)	($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:

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

to maintain the ending cash balance for feb month,it can borrow a sum of $59,700 to maintain the ending balance of $59,300

Martin Company	March
Beginning Cash Balance	$           59,300
Add: Receipts
Collections from customers	$        379,100
Sale of Marketable Securities	$                     -
Total Receipts	$        379,100
Total Available Cash	$        438,400
Less: Disbursements
Direct Materials	($ 212,100)
Direct Labor	($ 113,800)
Manufacturing Overhead (Note)	($58,900)
Selling and Administrative Expenses	($ 51,900)
Total Disbursements	($436,700)
Excess (Deficiency) of Available Cash over Cash Disbursements	$              1,700
Financing
Add: Borrowings	$ 15,000
Less: Repayments	$                     -
Ending Cash Balance	$ 16,700