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	$106,000		$137,000		$173,000
Manufacturing costs	45,000		59,000		62,000
Selling and administrative expenses	37,000		41,000		66,000
Capital expenditures	_		_		42,000

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 $10,000 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 $40,000, marketable securities of $57,000, and accounts receivable of $118,500 ($93,000 from July sales and $25,500 from August sales). Sales on account for July and August were $85,000 and $93,000, respectively. Current liabilities as of September 1 include $10,000 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 $16,000 will be made in October. Bridgeport’s regular quarterly dividend of $10,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $39,000.

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	$     10,600	$      13,700	$                         17,300
Collection of accounts receivable	$     90,600	$      94,680	$                      1,14,930
Total cash receipts	$ 1,01,200	$   1,08,380	$                      1,32,230
Less estimated cash payments for:
Manufacturing costs	$     38,000	$      46,200	$                         51,400
Selling and administrative expenses	$     37,000	$      41,000	$                         66,000
Capital expenditures			$                         42,000
Other purposes:
Income tax		$      16,000
Dividends			$                         10,000
Total cash payments	$     75,000	$   1,03,200	$                      1,69,400
Cash increase or (decrease)	$     26,200	$        5,180	$    (37,170)
Plus cash balance at beginning of month	$     40,000	$      66,200	$                         71,380
Cash balance at end of month	$     66,200	$      71,380	$                         34,210
Less minimum cash balance	$     39,000	$      39,000	$                         39,000
Excess or (deficiency)	$     27,200	$      32,380	$    (4,790)

Detailed workings for above calculations

Capital expenditures are assumed to be paid in cash

Schedule of Cash Collections
	September	October	November
From July Sale	$           25,500
From August Sale	$           65,100	$           27,900
From September Sale		$           66,780	$           28,620
From October Sale			$           86,310
	$           90,600	$           94,680	$       1,14,930
Schedule for calculation of payment of manufacturing cost
Manufacturing cost	45,000	59,000	62,000
Less: Depr, Insurance and property tax	10000	10000	10000
Balance Manufacturing cost	35,000	49,000	52,000
	September	October	November
For August	10000
For September	28000	7000
For October		39200	9800
For November			41600
Expected Payments for Manufacturing cost	38000	46200	51400
Cash Sales and Sales on account collections Calculation
	September	October	November
Sales	$       1,06,000	$       1,37,000	$       1,73,000
Cash sale = 10% of Sales	$           10,600	$           13,700	$           17,300
Balance sales on Account	$           95,400	$       1,23,300	$       1,55,700
70% of balance sales on account collected in next month	$           66,780	$           86,310	$       1,08,990
30% of Balance sales on account collected in second month following	$           28,620	$           36,990	$           46,710