Question

Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process.

Sales
Unit sales for November 2019		113,000
Unit sales for December 2019		101,000
Expected unit sales for January 2020		114,000
Expected unit sales for February 2020		111,000
Expected unit sales for March 2020		117,000
Expected unit sales for April 2020		124,000
Expected unit sales for May 2020		139,000
Unit selling price		$12

Waterways likes to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2019, totaled $181,800.

Direct Materials

Direct materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit.

Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,370 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $102,870.

Direct Labor

Labor requires 12 minutes per unit for completion and is paid at a rate of $9 per hour.

Manufacturing Overhead
Indirect materials		30¢		per labor hour
Indirect labor		50¢		per labor hour
Utilities		50¢		per labor hour
Maintenance		20¢		per labor hour
Salaries		$43,000		per month
Depreciation		$18,200		per month
Property taxes		$2,900		per month
Insurance		$1,100		per month
Maintenance		$1,200		per month

Selling and Administrative
Variable selling and administrative cost per unit is $1.60.
Advertising		$16,000	a month
Insurance		$1,300	a month
Salaries		$72,000	a month
Depreciation		$2,600	a month
Other fixed costs		$3,100	a month

Other Information

The Cash balance on December 31, 2019, totaled $100,000, but management has decided it would like to maintain a cash balance of at least $700,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.30 per share for 4,910 shares outstanding. The company has an open line of credit with Romney’s Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 9% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $500,000 equipment purchase is planned for February.

For the first quarter of 2020, prepare a cash budget. (Round answers to 0 decimal places, e.g. 2,520.)

Answer 1

WATERWAYS CORPORATION
Cash Budget for the Quarter -1,2020
Description	Jan-20	Feb-20	Mar-20	Q-I,2020
Beginning Cash Balance	$100,000	$700,774	$770,780	$100,000
Add: Budgeted Cash Receipts	$1,344,600	$1,337,400	$1,393,200	$4,075,200
Total Cash available for use	$1,444,600	$2,038,174	$2,163,980	$4,175,200
Less: Cash Disbursements
Direct Materials	$193,763	$180,368	$183,885	$558,016
Direct Labour	$204,660	$200,880	$211,860	$617,400
Factory Overheads	$82,310	$81,680	$83,510	$247,500
Selling and Administrative Expenses	$274,800	$270,000	$279,600	$824,400
Equipment Purchase		$500,000		$500,000
Dividends	$11,293	$11,293	$11,293	$33,879
Total Disbursements	$766,826	$1,244,221	$770,148	$2,781,195
Cash Surplus/(Deficit)	$677,774	$793,953	$1,393,832	$1,394,005
Financing				$0
Borrowings	$23,000	$0	$0	$23,000
Repayments	$0	($23,000)	$0	($23,000)
Interest	$0	($173)	$0	($173)
Net Cash from Financing	$23,000	($23,173)	$0	($173)
Budgeted Ending Cash Balance	$700,774	$770,780	$1,393,832	$1,393,832
Working Notes
Budgeted Cash Receipts	Jan-20	Feb-20	Mar-20	Q-I,2020
Cash receipts against sales
December Sales	$181,800			$181,800
January Sales	$1,162,800	$205,200		$1,368,000
February Sales		$1,132,200	$199,800	$1,332,000
March Sales			$1,193,400	$1,193,400
Total	$1,344,600	$1,337,400	$1,393,200	$4,075,200
Cash disbursed against Direct Materials
Cost of Goods Sold	Jan-20	Feb-20	Mar-20	Apr-20	May-20
No.of units sold	114,000	111,000	117,000	124,000	139,000
Opening Inventory @ 10% of Sales	11,400	11,100	11,700	12,400	13,900
Computation of unit manufactured
Beginning Inventory + Units Manufactured - Closing Inventory = Units Sold
Units Manufactured - = Units Sold + Closing Inventory - Beginning Inventory
Opening Inventory as on Jan 1,2020	11,400
Opening Inventory as on Feb 1,2020	11,100
Opening Inventory as on Mar 1,2020	11,700
Opening Inventory as on Apr 1,2020	12,400
Opening Inventory as on May 1,2020	13,900
Closing Inventory as on Jan 31,2020	11,100
Closing Inventory as on Feb 29,2020	11,700
Closing Inventory as on Mar 31,2020	12,400
Closing Inventory as on Apr 30,2020	13,900
	Jan-20	Feb-20	Mar-20	Apr-20
Units Sold	114,000	111,000	117,000	124,000
Add: Closing Inventory	11,100	11,700	12,400	13,900
Less: Opening Inventory	(11,400)	(11,100)	(11,700)	(12,400)
Units Manufactured	113,700	111,600	117,700	125,500
Cost of Goods Manufatured	Jan-20	Feb-20	Mar-20	Apr-20
No. of units produced	113,700	111,600	117,700	125,500
Material used for production(in pounds)	227,400	223,200	235,400	251,000
Cost per unit	$0.80	$0.80	$0.80	$0.80
Material Cost	$181,920	$178,560	$188,320	$200,800
5% of Material included in Inventory	11,370	11,160	11,770	12,550
Cost per unit	$0.80	$0.80	$0.80	$0.80
Material Cost	$9,096	$8,928	$9,416	$10,040
	Dec-19	Jan-20	Feb-20	Mar-20
Closing Inventory	9,096	8,928	9,416	10,040
Opening Inventory		9,096	8,928	9,416
Material Purchased = Material Consumed + Closing Inventory - Opening Inventory
	Jan-20	Feb-20	Mar-20
Materials Consumed	227,400	223,200	235,400
Add: Closing Inventory	8,928	9,416	10,040
Less: Opening Inventory	(9,096)	(8,928)	(9,416)
Materials Purchase Quantity	227,232	223,688	236,024
Unit Price	$0.80	$0.80	$0.80
Materials Purchase Value	$181,786	$178,950	$188,819
Cash disbursed against Direct Materials	Jan-20	Feb-20	Mar-20
Paid for December	$102,870
Paid for January	$90,893	$90,893
Paid for February		$89,475	$89,475
Paid for March			$94,410
Total	$193,763	$180,368	$183,885
Cash disbursed against Direct Labor
Labour Hours (Units Produced *12/60)	45,480	44,640	47,080
	Jan-20	Feb-20	Mar-20
Direct Labor ( Labor Hours * $ 9)	$409,320	$401,760	$423,720
Cash disbursed against Manufacturing Overheads
Manufacturing Overheads	Jan-20	Feb-20	Mar-20
Indirect Materials ( Labor Hours * $ 0.30)	$13,644	$13,392	$14,124
Indirect Labor ( Labor Hours * $ 0.50)	$22,740	$22,320	$23,540
Utilities ( Labor Hours * $ 0.50)	$22,740	$22,320	$23,540
Maintenance ( Labor Hours * $ 0.20)	$9,096	$8,928	$9,416
Salaries	$43,000	$43,000	$43,000
Property Taxes	$2,900	$2,900	$2,900
Insurance	$1,100	$1,100	$1,100
Maintenance	$1,200	$1,200	$1,200
	$116,420	$115,160	$118,820
Cash disbursed against Variable Selling & Administrative Overheads
Variable Selling & Administrative	Jan-20	Feb-20	Mar-20
Units Sold	114000	111000	117000
Variable Selling & Administrative Cost per unit	$1.60	$1.60	$1.60
Variable Selling & Administrative Cost	$182,400	$177,600	$187,200
Advertising	$16,000	$16,000	$16,000
Insurance	$1,300	$1,300	$1,300
Salaries	$72,000	$72,000	$72,000
Other Fixed Costs	$3,100	$3,100	$3,100
	$274,800	$270,000	$279,600
Borrowing from Romney's Bank
	Jan-20	Feb-20	Mar-20
Desired Cash Balance as on Jan 31	$700,000	$700,000	$700,000
Actual Cash Balance as on Jan 31	$677,774	770780	1393832.2
Shortfall	($22,226)	$70,780	$693,832
Bank finance required	$23,000	$0	$0
Interest on borrowing @ 9% for 1 month	$173	$0	$0