Question

Preparing a Cash Budget

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

1. Sales are budgeted to be $164,000. About 85% of sales is cash; the remainder is on account.
2. 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.
3. Food and supplies purchases, all on account, are expected to be $110,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.
4. 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.
5. Utilities average $5,950 per month. Rent on the building is $4,100 per month.
6. Insurance is paid quarterly; the next payment of $1,500 is due in October.
7. September sales were $181,500 and purchases of food and supplies in September equaled $130,000.
8. 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

1. Cash receipts for october
Cash sales ( 164000 * 85 % )	139400
Collection from credit sales
October ( 164000 * 15 % * 70 % )	17220
September ( 181500 * 15 % * 28 % )	7623
	164243
2. cash needed to pay for food purchases in october
October ( 110000 * 25 % )	27500
September ( 130000 * 75 % )	97500
	125000
La famiglia Pizzeria
Cash budget
Beginning balance	2147
Cash receipts	164243
Cash available	166390
Less:
Payments for food and supplies purchases	125000
Owners' draw	6000
Workers' wages ( 7300 * 10 % + 7300 * 90 % )	7300
Utilities	5950
Rent	4100
Insurance	1500
Total disbursements	149850
Ending balance	16540