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	$139,000		$167,000		$231,000
Manufacturing costs	58,000		72,000		83,000
Selling and administrative expenses	49,000		50,000		88,000
Capital expenditures	_		_		55,000

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 $9,000 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 $53,000, marketable securities of $75,000, and accounts receivable of $155,300 ($122,000 from July sales and $33,300 from August sales). Sales on account for July and August were $111,000 and $122,000, respectively. Current liabilities as of September 1 include $9,000 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 $20,000 will be made in October. Bridgeport’s regular quarterly dividend of $9,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $52,000.

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)	$	$	$

Answer 1

Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
	September	October	November
Estimated cash receipts from:
Cash sales	13,900	16,700	23,100
Collection of accounts receivable	118,700	124,170	142,740
Total cash receipts	132,600	140,870	165,840
Less estimated cash payments for:
Manufacturing costs	48,200	60,200	71,800
Selling and administrative expenses	49,000	50,000	88,000
Capital expenditures			55,000
Other purposes:
Income tax	20,000
Dividends		9,000
Total cash payments	117,200	119,200	214,800
Cash increase or (decrease)	15,400	21,670	(48,960)
Plus cash balance at beginning of month	53,000	68,400	90,070
Cash balance at end of month	68,400	90,070	41,110
Less minimum cash balance	52,000	52,000	52,000
Excess or (deficiency)	16,400	38,070	(10,890)

Collection of Accounts receivables
	September	October	November
Sales	139,000	167,000	231,000
Credit Sales	125,100	150,300	207,900
Collections
July Sales	33,300
August Sales	85,400	36,600
September Sales		87,570	37,530
October Sales			105,210
Total collections	118,700	124,170	142,740