Question

Preparing a Cash Budget

La Famiglia Pizzeria provided the following information for the month of October:

Sales are budgeted to be $163,000. About 85% of sales is cash; the remainder is on account.

La Famiglia expects that, on average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month.

Food and supplies purchases, all on account, are expected to be $108,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.

Most of the work is done by the owners, who typically withdraw $6,000 a month from the business as their salary. (Note: The $6,000 is a payment in total to the two owners, not per person.) Various part-time workers cost $7,300 per month. They are paid for their work weekly, so on average 90% of their wages are paid in the month incurred and the remaining 10% in the next month.

Utilities average $5,950 per month. Rent on the building is $4,100 per month.

Insurance is paid quarterly; the next payment of $1,300 is due in October.

September sales were $181,500 and purchases of food and supplies in September equaled $130,000.

The cash balance on October 1 is $2,147.

Required:

If required, round your answers to the nearest dollar.

1. Calculate the cash receipts expected in October.
$

2. Calculate the cash needed in October to pay for food purchases.
$

3. Prepare a cash budget for the month of October.

La Famiglia Pizzeria
Cash budget
For the month of October
Beginning balance	$
Cash receipts
Cash available	$
Less:
Payments for food and supplies purchases	$
Owners' draw
Workers' wages
Utilities
Rent
Insurance
Total disbursements	$
Ending balance	$

Answer 1

SOLUTION

(A) Cash receipts-

	Amount ($)
Cash receipts in October from:
Cash sales ($163,000 * 85% cash)	138,550
Payments on September credit sales*	7,623
Payments on October credit sales **	17,115
Total cash expected	163,288

* *$181,500 * 0.15 * 28% = $7,623

** $163,000 0.15 * 70% = $17,115

(B) Cash needed-

	Amount ($)
Payments for food purchases from:
September ($130,000 * 0.75)	97,500
October ($108,000 * 0.25)	27,000
Total cash needed for October	124,500

(C) Cash Budget-

	Amount ($)
Beginning balance	2,147
Cash receipts	163,288
Cash available (A)	165,435
Less:
Payments for food purchases	124,500
Owner's draw	6,000
Workers’ wages, September ($7,300 * 10%)	730
Workers’ wages, October ($7,300 * 90%)	6,570
Utilities	5,950
Rent	4,100
Insurance	1,300
Total disbursements (B)	149,150
Ending balance (A-B)	16,285