Question

Danner Company expects to have a cash balance of $45,000 on January 1, 2020. Relevant monthly budget data for the first 2 months of 2020 are as follows. Prepare a cash budget for 2 months.

Collections from customers: January $85,000, February $150,000.

Payments for direct materials: January $50,000, February $75,000.

Direct labor: January $30,000, February $45,000.Wages are paid in the month they are incurred.

Manufacturing overhead: January $21,000, February $25,000.

These costs include depreciation of $1,500 per month. All other overhead costs are paid as incurred.

Selling and administrative expenses: January $15,000, February $20,000. These costs are exclusive of depreciation. They are paid as incurred.

Sales of marketable securities in January are expected to realize $12,000 in cash.

Danner Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $20,000. Instructions Prepare a cash budget for January and February.

Answer 1

Prepare cash budget for January and February
	January	February
Collection from customers	85000.00	150000.00
Sale of marketable securities	12000.00
Total cash collections	97000.00	150000.00
Less: Cash payment
Payment for direct materials	50000.00	75000.00
Direct labour	30000.00	45000.00
Manufacturing overhead	19500.00	23500.00
Selling and administrative expenses	15000.00	20000.00
Total cash paid	114500.00	163500.00
Cash collection - cash paid	-17500.00	-13500.00
Beginning cash balance	45000.00	27500.00
Preliminary cash balance	27500.00	14000.00
Add: Loan borrowed		6000.00	(20000-14000)
Ending cash balance	27500.00	20000.00