Danner Company expects to have a cash balance of $62,865 on January 1, 2017. Rel

Question

Danner Company expects to have a cash balance of $62,865 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows.

Sales of marketable securities in January are expected to realize $16,764 in cash. Danner Company has a line of credit at a local bank that enables it to borrow up to $34,925. The company wants to maintain a minimum monthly cash balance of $27,940.

Collections from customers: January $118,745, February $209,550. Payments for direct materials: January $69,850, February $104,775. Direct labor: January $41,910, February $62,865. Wages are paid in the month they are incurred. Manufacturing overhead: January $29,337, February $34,925. These costs include depreciation of $2,095 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January $20,955, February $27,940. These costs are exclusive of depreciation. They are paid as incurred.

Explanation / Answer

Statement showing Cash Budget Particulars January February Cash Collections Collections from Customers             118,745.00           209,550.00 Sale of marketable Securities                16,764.00 Total Collections             135,509.00           209,550.00 Cash payments Payment for DM                69,850.00           104,775.00 Wages                41,910.00             62,865.00 Manu O/H Excl dep                27,242.00             32,830.00 Selling and admin exp                20,955.00             27,940.00 Total Payments             159,957.00           228,410.00 Net Collection (Payments)             (24,448.00)           (18,860.00) Opening Cash Balance                62,865.00             38,417.00 Closing Cash Balance before borrowing                38,417.00             19,557.00 Minimum Cash Balance                27,940.00             27,940.00 Borrowings                8,383.00 Closing Cash Balance after borrowing                38,417.00             27,940.00

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