http/llexp.cengage.com/activityservice/run/btml5/handler jspid-3lbb Cash Budget
ID: 2510901 • Letter: H
Question
http/llexp.cengage.com/activityservice/run/btml5/handler jspid-3lbb Cash Budget 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 Sales Manufacturing costs Selling and administrative expenses Capital expenditures September October November $88,000 $108,000 $149,000 37,000 46,000 54,000 32,000 31,000 57,000 36,000 The company expects to sell about 10% of its merchandise for cash-or 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 $8,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December, or 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 $33,000, marketable securities of $48,000, and accounts receivable of $98,000 ($77,000 from July sales and $21,000 from August sales). Sales on account for July and August were $70,000 and $77,000, respectively. Current liabilities as of September 1 include $8,000 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 $13,000 will be made in October Bridgeport's regular quarterly dividend of $8,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $32,000 Required: 1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Input all amounts as positive values except overall cash minus sign. Assume 360 days per year for interest calculations. decrease and deficiency which should be indicated with a Bridgeport Housewares Inc. Cash Budget For the Three Months Ending November 30 September October Novembe Estimated cash receipts from Total cash recelpts Less estimated cash payments for ?? Other purposes:Explanation / Answer
For preparation of cash budget following points are to be taken noted
· The collection from sales for the month are as follows for eg sale of September is $88,000
Ø 10% of sale is made on cash that is $8800 is received in September
Ø Sale on account or credit sales is 90% of sale value which is $79,200
Ø The cash expected to be collected on sale on account out of 90% is 70% of actual sale amount in following month which is October. the calculation is
=70/90 x $79200
=$61599.99 or $61600
Cash expected to be collected in November is on sale on account out of 90% is 20% of actual sale sale amount
= 20/90 x $79,200
=$17599.99 or $17600
Ø The sales on account for July is $70,000 and august is $ 77,000
The schedule of cash receipts is calculated below
schedule of expected cash collections budget of brigeport housewares inc
Sales
Collections ($)
month
amount
july
august
september
october
november
december
january
july
70000
54444
15556
august
77000
59889
17111
september
88000
8800
61600
17600
october
108000
10800
75600
21600
november
149000
14900
104300
29800
0
0
0
Total collections
0
54444
84244
89511
108100
125900
29800
The assumptions for payments are in cash budget are only those payments which are made are taken in preparation of cash budget
Ø In manufacturing costs $8000 is deducted from estimated monthly manufacturing costs as they are not actually paid but accounted in books of account as per accrual method of accounting .
The schedule of payment of manufacturing costs is given below
expected payment schedule of manufacturing costs budget of brigeport housewares inc
incurred
payments ($)
month
amount
july
august
september
october
november
december
january
july
august
8000
september
37000
23200
5800
october
46000
30400
7600
november
54000
36800
9200
Total cash payments
0
0
31200
36200
44400
9200
0
The cash budget is prepared as per information given in the assignment
Brigeport housewares Inc
cash budget
for the three months ending november 30
september
october
november
opening cash balance
33000
55044
63356
estimated cash receipts from
Cash sales
8800
10800
14900
sales on account
75444
78711
93200
Total estimated cash receipts
84244
89511
108100
Total cash available for use
117244
144556
171456
less:- cash payments for
manufacturing costs
31200
36200
44400
selling and administrative expenses
31000
32000
57000
capital expenditures
36000
other purposes
income tax payment
13000
dividend paid
8000
Total cash payment
62200
81200
145400
Cash surplus / (deficiency)
55044
63356
26056
Financing
borrowing
5944
repayment
net cash from financing
0
0
5944
cash balance at the end of month
55044
63356
32000
B )
The budget indicates the minimum cash balance $32000 be maintained in November this situation can be corrected by borrowing from bank for $5944 and/ or by the selling of $5944 of the marketable securities if they are held for such purposes at the at the end of September and October the cah balance will be more than the minimum desired level
schedule of expected cash collections budget of brigeport housewares inc
Sales
Collections ($)
month
amount
july
august
september
october
november
december
january
july
70000
54444
15556
august
77000
59889
17111
september
88000
8800
61600
17600
october
108000
10800
75600
21600
november
149000
14900
104300
29800
0
0
0
Total collections
0
54444
84244
89511
108100
125900
29800
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