Question

Preparing a Cash Budget

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

Sales are budgeted to be $156,000. About 85% of sales is cash; the remainder is on account.

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.

Food and supplies purchases, all on account, are expected to be $116,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.

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.

Utilities average $5,950 per month. Rent on the building is $4,100 per month.

Insurance is paid quarterly; the next payment of $1,600 is due in October.

September sales were $181,500 and purchases of food and supplies in September equaled $130,000.

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

Cash receipts expected in October = October cash sales + 70% of October credit sales + 28% of September credit sales

= (156,000*85%) + (156,000*15%*70%) + (181,500*15%*28%)

= 132,600 + 16,380 + 7,623

= 156,603

2.

Cash needed in October to pay for food purchases = 25% of October purchases + 75% of September purchases

= (116,000*25%) + (130,000*75%)

= 29,000 + 97,500

= 126,500

3.

La Famiglia Pizzeria

Cash budget

For the month of October

Beginning balance	2,147
Cash receipts	156,603
Cash available	158,750
Less :
Payments for food and supplies purchases	126,500
Owner's draw	6,000
Worker's wages [(7,300*90%)+(7,300*10%)]	7,300
Utilities	5,950
Rent	4,100
Insurance	1,600
Total disbursements	151,450
Ending balance	7,300