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	$109,000		$134,000		$184,000
Manufacturing costs	46,000		58,000		66,000
Selling and administrative expenses	38,000		40,000		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 $7,000 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 $41,000, marketable securities of $59,000, and accounts receivable of $121,100 ($95,000 from July sales and $26,100 from August sales). Sales on account for July and August were $87,000 and $95,000, respectively. Current liabilities as of September 1 include $7,000 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 $16,000 will be made in October. Bridgeport’s regular quarterly dividend of $7,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $40,000.

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)	$	$	$

Feedback

Answer 1

1)   Calculation of Credit sales (Amounts in $)

Particulars	September	October	November
Sales	109,000	134,000	184,000
Less: Cash Sales (10% of sales)	(10,900)	(13,400)	(18,400)
Credit Sales	98,100	120,600	165,600

2) Calculation of collection from Accounts Receivable (Amounts in $)

Particulars	September	October	November
For the month of:
July	26,100	-	-
August	66,500	28,500	-
September	-	68,670	29,430
October	-	-	84,420
Total Collections	92,600	97,170	113,850

3) Calculation of cash payments for manufacturing costs (Amounts in $)

Particulars	September	October	November
Manufacturing costs	46,000	58,000	66,000
Less: Depreciation, insurance, and property taxes	(7,000)	(7,000)	(7,000)
Remaining Manufacturing costs (A)	39,000	51,000	59,000
80% of the month paid in cash (B = A*80%)	31,200	40,800	47,200
20% of the preceeding month (C)	7,000	7,800	10,200
Total cash payment for manufacturing costs (B+C)	38,200	48,600	57,400

4) Bridgeport Housewares Inc.

Cash Budget

For the Three Months Ending November 30 (Amounts in $)

Particulars	September	October	November
Estimated cash receipts from:
Cash sales	10,900	13,400	18,400
Collection of accounts receivable	92,600	97,170	113,850
Total cash receipts	103,500	110,570	132,250
Less estimated cash payments for:
Manufacturing costs	(38,200)	(48,600)	(57,400)
Selling and administrative expenses	(38,000)	(40,000)	(70,000)
Capital expenditures	-	-	(44,000)
Other purposes:
Income tax	-	(16,000)	-
Dividends	-	-	(7,000)
Total cash payments	(76,200)	(104,600)	(178,400)
Cash increase or (decrease)	27,300	5,970	(46,150)
Plus cash balance at beginning of month	41,000	68,300	74,270
Cash balance at end of month	68,300	74,270	28,120
Less minimum cash balance	40,000	40,000	40,000
Excess or (deficiency)	28,300	34,270	(11,880)