In: Accounting
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 | $126,000 | $150,000 | $202,000 | |||
Manufacturing costs | 53,000 | 65,000 | 73,000 | |||
Selling and administrative expenses | 44,000 | 45,000 | 77,000 | |||
Capital expenditures | _ | _ | 48,000 |
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 $6,000 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 $48,000, marketable securities of $68,000, and accounts receivable of $140,300 ($30,300 from July sales and $110,000 from August sales). Sales on account for July and August were $101,000 and $110,000, respectively. Current liabilities as of September 1 include $6,000 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 $6,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $47,000.
Required:
1. Prepare a monthly cash budget and supporting schedules for September, October, and November. 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: | |||
$fill in the blank 30bfd5fd4f9e00f_2 | $fill in the blank 30bfd5fd4f9e00f_3 | $fill in the blank 30bfd5fd4f9e00f_4 | |
fill in the blank 30bfd5fd4f9e00f_6 | fill in the blank 30bfd5fd4f9e00f_7 | fill in the blank 30bfd5fd4f9e00f_8 | |
Total cash receipts | $fill in the blank 30bfd5fd4f9e00f_9 | $fill in the blank 30bfd5fd4f9e00f_10 | $fill in the blank 30bfd5fd4f9e00f_11 |
Less estimated cash payments for: | |||
$fill in the blank 30bfd5fd4f9e00f_13 | $fill in the blank 30bfd5fd4f9e00f_14 | $fill in the blank 30bfd5fd4f9e00f_15 | |
fill in the blank 30bfd5fd4f9e00f_17 | fill in the blank 30bfd5fd4f9e00f_18 | fill in the blank 30bfd5fd4f9e00f_19 | |
fill in the blank 30bfd5fd4f9e00f_21 | |||
Other purposes: | |||
fill in the blank 30bfd5fd4f9e00f_23 | |||
fill in the blank 30bfd5fd4f9e00f_25 | |||
Total cash payments | $fill in the blank 30bfd5fd4f9e00f_26 | $fill in the blank 30bfd5fd4f9e00f_27 | $fill in the blank 30bfd5fd4f9e00f_28 |
$fill in the blank 30bfd5fd4f9e00f_30 | $fill in the blank 30bfd5fd4f9e00f_31 | fill in the blank 30bfd5fd4f9e00f_32 | |
fill in the blank 30bfd5fd4f9e00f_34 | fill in the blank 30bfd5fd4f9e00f_35 | fill in the blank 30bfd5fd4f9e00f_36 | |
Cash balance at end of month | $fill in the blank 30bfd5fd4f9e00f_37 | $fill in the blank 30bfd5fd4f9e00f_38 | $fill in the blank 30bfd5fd4f9e00f_39 |
fill in the blank 30bfd5fd4f9e00f_41 | fill in the blank 30bfd5fd4f9e00f_42 | fill in the blank 30bfd5fd4f9e00f_43 | |
Excess or (deficiency) | $fill in the blank 30bfd5fd4f9e00f_44 | $fill in the blank 30bfd5fd4f9e00f_45 | $fill in the blank 30bfd5fd4f9e00f_46 |
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
The budget indicates that the minimum cash balance be maintained in November. This situation can be corrected by and/or by the of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will the minimum desired balance.
Solution 1: | |||
Computation of Collection from Customer | |||
Particulars | September | October | November |
Collection for July Sales | $30,300.00 | ||
Collection for August Sales | $77,000.00 | $33,000.00 | |
Collection for September Sales | $79,380.00 | $34,020.00 | |
Collection for October Sales | $94,500.00 | ||
Total cash collections | $107,300.00 | $112,380.00 | $128,520.00 |
Computation of Cash payment of manufacturing costs | |||
Particulars | September | October | November |
Payment for August Manufacturing cost | $6,000.00 | ||
Payment for September Manufacturing cost | $37,600.00 | $9,400.00 | |
Payment for October Manufacturing cost | $47,200.00 | $11,800.00 | |
Payment for November Manufacturing cost | $53,600.00 | ||
Total cash disbursements | $43,600.00 | $56,600.00 | $65,400.00 |
Bridgeport Housewares Inc. | |||
Cash Budget | |||
For the Three Months Ending November 30 | |||
Particulars | September | October | November |
Estimated cash receipts from: | |||
Cash sales | $12,600.00 | $15,000.00 | $20,200.00 |
Collection of accounts receivable | $107,300.00 | $112,380.00 | $128,520.00 |
Total cash receipts | $119,900.00 | $127,380.00 | $148,720.00 |
Less estimated cash payments for: | |||
Manufacturing costs | $43,600.00 | $56,600.00 | $65,400.00 |
Selling and administrative expenses | $44,000.00 | $45,000.00 | $77,000.00 |
Capital expenditures | $48,000.00 | ||
Other purposes: | |||
Income tax | $18,000.00 | ||
Dividends | $6,000.00 | ||
Total cash payments | $87,600.00 | $119,600.00 | $196,400.00 |
Cash increase or (decrease) | $32,300.00 | $7,780.00 | -$47,680.00 |
Plus cash balance at beginning of month | $48,000.00 | $80,300.00 | $88,080.00 |
Cash balance at end of month | $80,300.00 | $88,080.00 | $40,400.00 |
Less minimum cash balance | $47,000.00 | $47,000.00 | $47,000.00 |
Excess or (deficiency) | $33,300.00 | $41,080.00 | -$6,600.00 |
Solution 2:
The budget indicates that the minimum cash balance will not be maintained in November. This situation can be corrected by borrowing or by the Sale of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will exceeds the minimum desired balance. |