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	$116,000		$146,000		$183,000
Manufacturing costs	49,000		63,000		66,000
Selling and administrative expenses	41,000		44,000		70,000
Capital expenditures	_		_		44,000

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 $44,000, marketable securities of $63,000, and accounts receivable of $129,900 ($102,000 from July sales and $27,900 from August sales). Sales on account for July and August were $93,000 and $102,000, 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 $43,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. 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	$	$	$
Collection of accounts receivable
Total cash receipts	$	$	$
Less estimated cash payments for:
Manufacturing costs	$	$	$
Selling and administrative expenses
Capital expenditures
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

	July	August	September	October	November
Cash Sales			$      11,600	$     14,600	$       18,300	10% of sales
Credit Sales	$    93,000	$      102,000	$    104,400	$   131,400	$    164,700	90% of sales
Other Manufacturing costs			$      41,000	$     55,000	$       58,000
Depreciation, insurance, and property tax expense			$         8,000	$        8,000	$         8,000
Selling and administrative expenses			$      41,000	$     44,000	$       70,000
Capital expenditures					$       44,000

	September	October	November	Workings
Estimated Cash Receipts:
Cash sales	$    11,600	$         14,600	$      18,300
Collection from receivables	$    99,300	$      103,680	$    123,300	70% of Previous month sale & 30% of previous 2nd month sale
Total Cash receipts	$ 110,900	$      118,280	$    141,600
Less estimated Cash Payments for:
Manufacturing costs	$    40,800	$         52,200	$      57,400
Selling and administrative expenses	$    41,000	$         44,000	$      70,000
Capital expenditures			$      44,000
Other purposes:
Income tax		$         18,000
Dividends			8000
Total cash payments	$    81,800	$      114,200	$    179,400
Cash increase or (decrease)	$    29,100	$           4,080	$     (37,800)
Plus cash balance at beginning of month	$    44,000	$         73,100	$      77,180
Cash balance at end of month	$    73,100	$         77,180	$      39,380
Less: minimum cash balance	$    43,000	$         43,000	$      43,000
Excess or (deficiency)	$    30,100	$         34,180	$       (3,620)

Manufacturing costs
80% of current month	$    32,800	$         44,000	$      46,400
20% of previous month	$       8,000	$           8,200	$      11,000
Total Manufacturing costs	$    40,800	$         52,200	$      57,400

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