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 $101,000 $126,000 $169,000 Manufacturing costs 42,000 54,000 61,000 Selling and administrative expenses 35,000 38,000 64,000 Capital expenditures _ _ 41,000 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 $38,000, marketable securities of $55,000, and accounts receivable of $112,300 ($88,000 from July sales and $24,300 from August sales). Sales on account for July and August were $81,000 and $88,000, 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 $15,000 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 $37,000. 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 $ 10,100 $ 12,600 $ 16,900 Collection of accounts receivable 61,600 Total cash receipts $ $ $ Less estimated cash payments for: $ $ $ Other purposes: Total cash payments $ $ $ $ $ $ Cash balance at end of month $ $ $ Excess or (deficiency) $ $ $ Feedback The primary source of estimated cash receipts is from cash sales and collections on account. To estimate cash receipts from cash sales and collections on account, a schedule of collections from sales is prepared. Learning Objective 5. 2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller? The budget indicates that the minimum cash balance be maintained in November. This situation can be corrected by and/or by the of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will the minimum desired balance.

Answer 1

Requirement 1
	Bridgeport Houseware Inc.
	Cash Budget
	For the Three Months Ending May 31, 2016
			September		October		November
	Estimated cash receipts from:
	Cash sales		10100		12600		16900
	Collection of accounts receivable		85900		90030		106650
	Total cash receipts		96000		102630		123550
	Estimated cash payments for:
	Manufacturing costs		35400		42600		50600
	Selling and administrative expenses		35000		38000		64000
	Capital expenditures						41000
	Other purposes:
	Income tax				15000
	Dividends						9000
	Total cash payments		70400		95600		164600
	Cash increase or (decrease)		25600		7030		-41050
	Cash balance at beginning of month		38000		63600		70630
	Cash balance at end of month		63600		70630		29580
	Minimum cash balance		37000		37000		41000
	Excess or (deficiency)		26600		33630		-11420
	Working Note for your understanding
	Collection from Customers		Septemebr		October		November
	From July Sales		24300
	From August sales		61600		26400
	From September sales				63630		27270
	From October sales						79380
	Total Collection from Credit sales		85900		90030		106650
Requirement 2
	The Budget indicates that the minimum cash balance of $29580 maintained in November.
	This situation can be corrected by borrowing and/or by the sale of marketable securities,
	if they are held for such purposes. At the end of March and April, the cash balance will
	exceed the Minimum desired balance.