Question

Bench Corporation is a merchandising company that is preparing a cash budget for the third quarter. They have the following budget information available.  

1. Estimated sales for July, August, September, and October will be $210,000, $230,000, $220,000, and $240,000. Accounts receivable from June sales are $136,000. All sales are on credit and collected 35% in the month of sale and 65% in the month following sale.

2. Inventory purchases for July, August, and September are budgeted as $129,600, $136,200, and $135,600. Accounts payable from June purchases are $71,100. All purchases are paid 40% in the month of purchase and 60% in the month following purchase.

3. Monthly SGA expenses are $60,000; $5,000 of which represents depreciation.

4. In August, Bench purchases a machine for $90,000.

5. The July 1 cash balance is $20,000. For debt covenants, Bench must maintain a $10,000 cash balance at month end. The company has access to a revolving line of credit at a 6% annual rate. Borrowing occurs in $5,000 increments at the end of a month and is repaid as soon as possible. Interest is paid when the principal is repaid.

What were the total cash receipts for September?

What were the expected cash disbursements for inventory purchases in September?

What was the beginning cash balance for September?

How much money was drawn on the line of credit (e.g., borrowed) for the quarter?

What were total monthly Selling & Administrative (or SGA) expenses?

How much was paid in cash for Selling & Administration per month?

What was the ending cash balance for September?

What was the ending cash balance for the quarter?

What were the total cash receipts for the quarter?

How much interest was paid during the quarter?

Answer 1

PART 1 TOTAL CASH RECEIPT FOR SEPTEMBER

PARTICULARS MONTH

JUNE    JULY AUGUST SEPTEMBER OCTOBER

ESTIMATED SALES - 2,10,000 2,30,0000 2,20,000 2,40,0000

CASH RECEIPT (35%

IN THE MONTH OF SALE ) - 73,500 80,500 77,0000 84,0000

CASH RECEIPT (65% IN THE

FOLLOWING MONTH) 1,36,000 136500 149500 143000

TOTAL CASH RECEIPT 2,09500 2,17000 2,26,500 2,27,000

SO, THE CASH RECEIPT FOR THE MOTH OF SEPTEMBER =$226,500

PART 2 CALCULATION OF EXPECTED CASH DISBURSEMENT ON PURCHASE OF INVENTORY

PARTICULARS MONTH

JUNE JULY AUGUST SEPTEMBER   

ESTIMATED PURCHASES - 1,29,600 1,36,200 1,35,600

CASH PAYMENT(40% IN

THE MONTH OF PURCHASE)(A) 51,480 54,480 54,240

CASH PAYMENT 60% IN THE

FOLLOWING MONTH) (B) 71000 77760 81720

TOTAL CASH PAYMENT (A+B) 1,22,840 1,32,240 1,35,960

TOTAL CASH PAYMENT FOR THE PURCHASE OF INVENTORY IN THE MONTH OF SEPTEMBER= $135960

PART 3

PARTICULARS JULY AUGUST SEPTEMBER   

OPENING CASH BALANCE 20,000 51,660 11,420

ADD: CASH RECEIPT FROM

DEBTORS(AS CALCULATED IN

ABOVE PART 1) 2,09,500 2,17,000 2,26,500   

LESS: CASH PAYMENT TO

PAYABLES (AS CALCULATED IN

ABOVE PART 2) 1,22,840 1,32,240 1,35,960

LESS: SGA EXPENSES 55,000 55,000 55,000

(SEE WORKING NOTE )

LESS : PURCHASE OF MACHINE 0 90,000 0

LESS: BORROWING COST 0 0 100

CASH BALANCE 51,660 (8580) 46,860

ADD: AMOUNT BORROWED 0   20,000 0

LESS: BORROWING REFUND 0 0 (20,000)

CLOSING CASH BALANCE 51,660 11420 26,860

OPENING CASH BALANCE AS ON 1ST SEPTEMBER = 11,420

WORKING NOTE

1. CASH RECEIPTS IN THE MONTH ARE TAKEN AS CALCULATED IN PART 1

2. CASH PAYMENTS HAVE BEEN TAKEN FROM THE PART 2

3. TOTAL SGA EXPENSES ARE 60,000 OUT OF WHICH 5,000 IS DEPRECIATION, SINCE DEPRECIATION IS NON CASH EXPENSE SO NOT INCLUDED IN CASH BUDGET. SO SGA EXPENSE= 55,000

4. BORROWING COST = 20,000 X 6% X 1/12 MONTHS = 100

5. AMOUNT BORROWED IN THE MONTH OF AUGUST IS REFUNDED IN THE MONTH OF SEPTEMBER AS THERE IS EXCESS CASH BALANCE

PART 4 AMOUNT DRAWN ON THE LINE OF CREDIT

PARTICULARS JULY AUGUST   

OPENING CASH BALANCE 20,000 51,660   

ADD: CASH RECEIPT FROM

DEBTORS(AS CALCULATED IN

ABOVE PART 1) 2,09,500 2,17,000   

LESS: CASH PAYMENT TO

PAYABLES (AS CALCULATED IN

ABOVE PART 2) 1,22,840 1,32,240   

LESS: SGA EXPENSES 55,000 55,000

(SEE WORKING NOTE )

LESS : PURCHASE OF MACHINE 0 90,000   

LESS: BORROWING COST 0 0   

CASH BALANCE 51,660 (8580)   

ADD: AMOUNT BORROWED 0   20,000

LESS: BORROWING REFUND 0 0   

CLOSING CASH BALANCE 51,660 11420   

since the cash balance in the month of august is (8580) so cash is borrowed to keep the closing cash of 10,000 and since cash can be borrowed in multiple of 5000 so 20,000 is borrowed. and the closing cash balance = $11,420