Question

1. Cash Budget

   The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following An accounting device used to plan and control resources of operational departments and divisions.budget information:

   	September		October		November
   Sales	$108,000		$129,000		$179,000
   Manufacturing costs	45,000		55,000		64,000
   Selling and administrative expenses	38,000		39,000		68,000
   Capital expenditures	_		_		43,000

   The company expects to sell about 10% of its merchandise for cash. Of 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 $9,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of 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 $41,000, marketable securities of $58,000, and accounts receivable of $120,800 ($95,000 from July sales and $25,800 from August sales). Sales on account for July and August were $86,000 and $95,000, respectively. Current liabilities as of September 1 include $9,000 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 $15,000 will be made in October. Bridgeport’s regular quarterly dividend of $9,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $40,000.

   Required:

   1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculations.

   Bridgeport Housewares Inc.
   Cash Budget
   For the Three Months Ending November 30
   	September	October	November
   Estimated cash receipts from:
   Capital expenditures Cash increase or (decrease) Cash sales Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Manufacturing costs Plus cash balance at beginning of month Plus minimum cash balance	$	$	$
   Capital expenditures Cash increase or (decrease) Collection of accounts receivable Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Manufacturing costs Plus cash balance at beginning of month Plus minimum cash balance
   Total cash receipts	$	$	$
   Less estimated cash payments for:
   Capital expenditures Cash increase or (decrease) Collection of accounts receivable Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Manufacturing costs Plus cash balance at beginning of month Plus minimum cash balance	$	$	$
   Capital expenditures Cash increase or (decrease) Collection of accounts receivable Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Plus cash balance at beginning of month Plus minimum cash balance Selling and administrative expenses
   Capital expenditures Cash increase or (decrease) Collection of accounts receivable Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Plus cash balance at beginning of month Plus minimum cash balance Selling and administrative expenses
   Other purposes:
   Capital expenditures Cash increase or (decrease) Collection of accounts receivable Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Plus cash balance at beginning of month Plus minimum cash balance Selling and administrative expenses
   Capital expenditures Cash increase or (decrease) Collection of accounts receivable Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Plus cash balance at beginning of month Plus minimum cash balance Selling and administrative expenses
   Total cash payments	$	$	$
   Capital expenditures Cash increase or (decrease) Collection of accounts receivable Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Plus cash balance at beginning of month Plus minimum cash balance Selling and administrative expenses	$	$	$
   Capital expenditures Cash increase or (decrease) Collection of accounts receivable Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Plus cash balance at beginning of month Plus minimum cash balance Selling and administrative expenses
   Cash balance at end of month	$	$	$
   Capital expenditures Cash increase or (decrease) Collection of accounts receivable Dividends Income tax Less cash balance at beginning of month Less minimum cash balance Plus cash balance at beginning of month Plus minimum cash balance Selling and administrative expenses
   Excess or (deficiency)	$	$	$

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   2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?

   The budget indicates that the minimum cash balance

   • will
   • will not
   be maintained in November. This situation can be corrected by
   • investing
   • borrowing
   and/or by the
   • purchase
   • sale
   of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will
   • exceed
   • be short of
   the minimum desired balance.

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Answer 1

Sep Oct Nov 10,800 92,300 103,100 12,900 96,540 109,440 17,900 110,430 128,330 44,000 Bridgeport Housewares Inc. Cash Budget For the Three Months Ending Nov 30 Req1 Estimated cash receipts from: Cash sales Collection of accounts receivable Total cash receipts Estimated cash payments for: Manufacturing costs Selling and administrative expenses Capital expenditures Other purposes: Income tax Dividends Total cash payments Cash increase or (decrease) Plus: Cash balance at beginning of month Cash balance at end of month Less: Minimum cash balance Excess or (deficiency) 37,800 38,000 53,200 68,000 43,000 75,800 27,300 41,000 68,300 40,000 28,300 15,000 - 98,000 11,440 68,300 79,740 40,000 39,740 9,000 173,200 (44,870) 79,740 34,870 40,000 (5,130) Req2 Budget indicates that minimum cash balance will not be maintained in Nov. The situation can be corrected by Borrowings and/ or by the sale of marketable securities, if they are held for such purposes At the end of Sep and Oct, cash balance will meet the minimum desired balance. Calculation Sep Oct Nov Sep 108,000 10,800 Oct 129,000 12,900 Nov 179,000 17,900 108,000*10% 129,000*10% 179,000*10% Workings Schedule of expected cash collections Sales Cash sales Collection of accounts receivable Accounts Receivable-July sales Accounts Receivable-Aug sales Sep sales Oct sales Total Collection of accounts receivable 25,800 66,500 =95,000*70% =95,000*30% =108,000*90%*70% 28,500 68,040 - 96,540 29,160 81,270 110,430 =108,000*90%*30% =129,000*90%*70% 92,300 Sep Oct Nov Sep Oct Nov 45,000 55,000 64,000 19,000) (9,000) (9,000) 36,000 46,000 55,000 Expected cash payments-Mfg costs Manufacturing costs Less Dep/Insurance/Property tax Total Cash Payments Accounts Payable-Aug costs Sep costs Oct costs Nov costs Total Cash payments 9,000 28,800 =36,000*80% =36,000*20% -46,000*80% 7,200 36,800 - 44,000 9,200 44,000 53,200 =46,000*20% =55,000*80% 37,800