Question

6-43 cash budgeting, budgeted balance sheet (Continuation 016-42) (Appendix)

Refer to the information in Problem 6-42.

Budgeted balances at January 31, 2018 are as follows:

Cash                                                           ?

Accounts receivable                                 ?

Inventory                                                     ?

Property. plant and equipment (net)    $1,175,600

Accounts payable                                                 ?

Long-term liabilities                                      182,000

Stockholders' equity                                            ?

Selected budget information for December 2017 follows:

Cash balance, December 31, 2017                  $124,000

Budgeted sales                                                     1,650,000

              Budgeted materials purchases                         820,000

                                                                                         

Customer invoices are payable within 30 days. From past experience, Skulas’s accountant projects of invoices will be collected in the month invoiced, and 60% will be collected in the following month.

Accounts payable relates only to the purchase of direct materials. Direct materials are purchased credit with 50% of direct materials purchases paid during the month of the purchase, and 50% paid in the month following purchase.

Fixed manufacturing overhead costs include $64,000 of depreciation costs and fixed nonmanufacturing overhead costs include $10,000 of depreciation costs. Direct manufacturing labor and the remaining manufacturing and nonmanufacturing overhead costs are paid monthly.

All property, plant, and equipment acquired during January 2018 were purchased on credit and did not entail any outflow of cash.

There were no borrowings or repayments with respect to long-term liabilities in January 2018.

On December 15, 2017, Skulas's board of directors voted to pay a $160,000 dividend to stockholders on

January 31, 2018.

1. Prepare a cash budget for January 2018. Show supporting schedules for the calculation of collection

of receivables and payments of accounts payable, and for disbursements for fixed manufacturing and

nonmanufacturing overhead.

2. Skulas is interested in maintaining a minimum cash balance of $120,000 at the end of each month. Will Skulas be in a position to pay the S160,000 dividend on January 31?

3. Why do Skulas's managers prepare a cash budget in addition to the revenue, expenses, and operating

income budget?

4. Prepare a budgeted balance sheet for January 31, 2018 by calculating the January 31, 2018 balances

in (a) cash (b) accounts receivable (c) inventory (d) accounts payable and (e) plugging in the balance

for stockholders' equity.

Answer 1

1.

Cash Collections from Receivables
From sales in:
December7 (60% ´ $1,650,000)	$ 990,000
January (40% ´ $1,885,000)	754,000
Total	$1,744,000
Cash Disbursements for Material Purchases
For purchases in:
December (50% × $820,000)	$410,000
January (50% × $1,021,600a)	510,800
Total	$920,800
a6-37, Schedule 3B
Cash Disbursements for Fixed Overhead Costs
Fixed manufacturing overhead ($81,000b – $64,000)	$17,000
Fixed nonmanufacturing overhead ($35,000c – $10,000)	25,000
Total	$42,000

^b6-42, Schedule 5

^c6-42, Budgeted Income Statement

Cash Budget for January 2018

Beginning cash balance	$ 124,000
Add receipts: Collection of receivables	1,744,000
Total cash available	$1,868,000
Deduct disbursements:
Material purchases	$ 920,800
Direct manufacturing labor	377,000
Variable manufacturing overhead	91,000
Fixed manufacturing overhead	17,000
Variable marketing costs	9,500
Fixed nonmanufacturing costs	25,000
Cash dividends	160,000
Total disbursements	1,600,300
Ending cash balance	$ 267,700

2.

Yes. Skulas has a budgeted cash balance of $267,700 on January 31, 2018, after paying the dividend of $160,000 at the end of January.

3.

Skulas’ managers prepare a cash budget in addition to the operating income budget to plan cash flows to ensure that the company has adequate cash to pay vendors, meet payroll, and pay operating expenses as these payments come due. Skulas could be very profitable on an accrual accounting basis, but the pattern of cash receipts from revenues might be delayed and result in insufficient cash being available to make scheduled payments for its expenses. Skulas’ managers may then need to initiate a plan to borrow money to finance any shortfall. Building a profitable operating plan does not guarantee that adequate cash will be available, so Skulas’ managers need to prepare a cash budget in addition to an operating income budget.

4.   Budgeted Balance Sheet for Skulas as of January 31, 2018

  Cash $ 267,700

  Accounts receivable (60% × $1,885,000)   1,131,000

  Inventory Schedule 6B    192,120

  Property, plant, and equipment (net) 1,175,600

  Total assets   $2,766,420

Accounts Payable $ 510,800

  Long-term liabilities 182,000

Stockholders’ equity 2,073,620

Total liabilities and stockholders’ equity   $2,766,420