Question

Built-Tight is preparing its master budget for the quarter ended September 30. Budgeted sales and cash payments for product costs for the quarter follow:

	July			August			September
Budgeted sales	$	64,000		$	80,000		$	48,000
Budgeted cash payments for
Direct materials		16,160			13,440			13,760
Direct labor		4,040			3,360			3,440
Factory overhead		20,200			16,800			17,200

Sales are 20% cash and 80% on credit. All credit sales are collected in the month following the sale. The June 30 balance sheet includes balances of $15,000 in cash; $45,000 in accounts receivable; $4,500 in accounts payable; and a $5,000 balance in loans payable. A minimum cash balance of $15,000 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning-of-the-month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and consist of sales commissions (10% of sales), office salaries ($4,000 per month), and rent ($6,500 per month).

2. Prepare a cash budget for each of the months of July, August, and September. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Enter your final answers in whole dollars.)

	BUILT-TIGHT Cash Budget For July, August, and September July August September Beginning cash balance Total cash available Cash payments for: Total cash payments Preliminary cash balance Additional loan from bank Repayment of loan to bank Ending cash balance 0 0 0 . Loan balance July August September Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month

Answer 1

Answer:

BUILT-TIGHT
Cash Budget
For July, August, and September
	July	August	September
Beginning cash balance	15,000	15,000	25,505
Cash Receipts from customers	57,800	67,200	73,600
Total cash available	72,800	82,200	99,105
Cash payments for:
Direct Materials	16,160	13,440	13,760
Direct Labor	4,040	3,360	3,440
Overhead	20,200	16,800	17,200
Sales Commission	6,400	8,000	4,800
Office Salaries	4,000	4,000	4,000
Rent	6,500	6,500	6,500
Interest on Bank Loan	50	46	0
Total cash payments	57,350	52,146	49,700
Preliminary cash balance	15,450	30,055	49,405
Additional loan from bank	0	0	0
Repayment of loan to bank	-450	-4,550	0
Ending cash balance	15,000	25,505	49,405

Loan balance
	July	August	September
Loan balance - Beginning of month	5,000	4,550	0
Additional loan (loan repayment)	-450	-4,550	0
Loan balance - End of month	4,550	0	0

Calculation:

Cash Receipts from customers :

July = 64,000 * 20% + 45000 = 57,800

August = 64,000 *80% + 80,000 * 20% = 67,200

September = 80,000 *80% + 48,000* 20% = 73,600

Sales Commission :

July = 64,000 * 10 % = 6,400

August = 80,000 * 10% = 8,000

September = 48,000 * 10% = 4,800

Interest on Bank Loan

July = 5,000 * 1 % = 50

August = 5,000 - 450(repayment to bank loan in july) = 4,550 * 1% = 45.5 = 46(rounded)

Repayment of loan to bank

July = Preliminary cash balance - minimum cash balance = 15 450 - 15,000 = 450

It was asked to indicate Loan repayment amounts (if any) minus sign, in the table Repayment of loan to bank is shown as -450.

August = As preliminary cash balance was 30,055, could close the rest of the loan amount.So, -4,450 is paid off.