Garza Company expects to have a cash balance of $61,364 on January 1, 2010. Rele
ID: 2386617 • Letter: G
Question
Garza Company expects to have a cash balance of $61,364 on January 1, 2010.
Relevant monthly budget data for the first 2 months of 2010 are as follows.
Collections from customers: January $113,390, February $200,100.
Payments for direct materials: January $66,700, February $93,380.
Direct labor: January $40,020, February $60,030. Wages are paid in the month they are incurred.
Manufacturing overhead: January $28,014, February $33,350. These costs include depreciation of $1,334 per month. All other overhead costs are paid as incurred.
Selling and administrative expenses: January $20,010, February $26,680. These costs are exclusive of depreciation. They are paid as incurred.
Sales of marketable securities in January are expected to realize $13,340 in cash. Garza Company has a line of credit at a local bank that enables it to borrow up to $33,350. The company wants to maintain a minimum monthly cash balance of $26,680.
Complete the cash budget for January and February. (List multiple entries from largest to smallest amounts, e.g. 10, 5, 1 for January. If answer is zero, please enter 0, do not leave any fields blank.)
For the Months Ending February 28, 2010
$
$
$
$
GARZA COMPANY Cash BudgetFor the Months Ending February 28, 2010
January February Beginning cash balance$
$
Add: Receipts Total receipts Total available cash Less: Disbursements Total disbursements Excess (deficiency) of available cash over cash disbursements Financing Ending cash balance$
$
Explanation / Answer
Cash budget is a simple concept that includes the cash inflows and the cash out flows during the period. Cash budget can be prepared as follows;
In the cash budget we have to add all the cash inflows to the cash in hand at the beginning of the period, and then we have to deduct all the cash out flows.
While preparing the cash budget we have to concentrate on the additional information. See here for sales we have to record the 30% of sales in the current month and the 60% in the following month, 8% in the second following month.
As you asked for the solution in steps, the steps for the preparation of cash budget are as follows;
Step 1: here we have to add the accounts receivables and sales to the cash in the beginning of the period. we will get the available cash by adding the all cash inflows. (we have to add all the cash inflows for the first month)
Step 2: here we have to record all the cash disbursements according to the given information (for the first month only). Here we will get total cash disbursements
Step 3: here we have to deduct the total cash disbursements from the available cash to get cash surplus/deficit.
Step 4: here we have to record the first month's cash surplus/deficit amount as the next month beginning cash balance.
Step 5: we have to rotate the same activity in the second and the third months.
Step 6: after getting the surplus cash balance in the final month, we have to deduct the other financing costs to get the cash at the end of the period.
Particulars
Jan
Feb
61,364
33,350
113,390
200,100
13,340
0
188,094
233,450
66,700
93,380
40,020
60,030
28,014
33,350
20,010
26,680
154,744
213,440
33,350
20,010
0
0
Particulars
Jan
Feb
Cash receipts: Cash in the beginning61,364
33,350
Accounts receivable113,390
200,100
Sales13,340
0
Available cash (A)188,094
233,450
Less: cash disbursements Purchase of direct material66,700
93,380
Direct labor40,020
60,030
Manufacturing overhead including depreciation28,014
33,350
Selling and administrative expenses20,010
26,680
Total cash disbursements (B)154,744
213,440
Cash surplus (A-B)33,350
20,010
Less: financing0
0
Cash at the end of the period 33,350 20,010Related Questions
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