Question

Built-Tight is preparing its master budget for the quarter ended September 30. Budgeted sales and cash payments for product costs for the quarter follow.

	July			August			September
Budgeted sales	$	58,000		$	74,000		$	54,000
Budgeted cash payments for
Direct materials		15,960			13,240			13,560
Direct labor		3,840			3,160			3,240
Factory overhead		20,000			16,600			17,000

Sales are 25% cash and 75% on credit. All credit sales are collected in the month following the sale. The June 30 balance sheet includes balances of $15,000 in cash; $44,800 in accounts receivable; $4,300 in accounts payable; and a $4,800 balance in loans payable. A minimum cash balance of $15,000 is required. Loans are obtained at the end of any month when a cash shortage occurs. Interest is 1% per month based on the beginning-of-the-month loan balance and is paid at each month-end. If an excess balance of cash exists, loans are repaid at the end of the month. Operating expenses are paid in the month incurred and consist of sales commissions (10% of sales), office salaries ($3,800 per month), and rent ($6,300 per month).

2. Prepare a cash budget for each of the months of July, August, and September. (Negative balances and Loan repayment amounts (if any) should be indicated with minus sign. Enter your final answers in whole dollars.)

BUILT-TIGHT Cash Budget For July, August, and September September August July $ Beginning cash balance 15,000 15,000 Cash receipts from customers 59,300 Total cash available 74,300 Cash payments for: Direct materials 15,960 Direct labor 3,840 Overhead 20,000 Sales commissions Office salaries Rent Interest on bank loan Total cash payments 39,800 0 0 Preliminary cash balance Additional loan from bank Repayment of loan to bank Ending cash balance 0 0 Loan balance July August September Loan balance - Beginning of month Additional loan (loan repayment) Loan balance - End of month

Answer 1

Correct Answer:

BUILT-TIGHT
Cash Budget
for July, August and September
	July	August	September
Beginning Cash Balance	$          15,000	$           15,000	$           25,240
Add: Collection from Sales and receivables	$          59,300	$           62,000	$           69,000
Total Cash Available	$          74,300	$           77,000	$           94,240
Cash Payments For
Direct material	$          15,960	$           13,240	$           13,560
Direct Labor	$             3,840	$             3,160	$             3,240
Overheads	$          20,000	$           16,600	$           17,000
Sales Commission	$             5,800	$             7,400	$             5,400
office salaries	$             3,800	$             3,800	$             3,800
Rent	$             6,300	$             6,300	$             6,300
Interest on loan	$                   48	$                   12	$                    -
Total Cash Payments	$          55,748	$           50,512	$           49,300
Preliminary Cash Balance	$          18,552	$           26,488	$           44,940
Loan Taken (Repaid)	$          (3,552)	$           (1,248)	$                    -
Ending Cash Balance	$          15,000	$           25,240	$           44,940
Loan Balance
Loan Balance	$             4,800	$             1,248	$                    -
Additional Loan (Loan Repayment)	$          (3,552)	$           (1,248)
Loan Balance End of Month	$             1,248	$                    -	$                    -

Working:

Cash receipts from sales
	July	August	September
Total Sales	$          58,000	$           74,000	$           54,000
Cash Sales	$          14,500	$           18,500	$           13,500
Collection for Previous month (75% of previous months total sales)	$          44,800	$           43,500	$           55,500
Total Receipts	$          59,300	$           62,000	$           69,000

End of answer.

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