Question

PR 22-5A Cash Budget Obj. 5 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 budget information: October Sales Manufacturing costs Selling and administrative expenses Capital expenditures September $250,000 150,000 42,000 $300,000 180,000 48,000 November $315,000 185,000 51,000 200,000 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 $50,000 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 $40,000, marketable securities of $75,000, and accounts receivable of $300,000 ($60,000 from July sales and $240,000 from August sales). Sales on account for July and August were $200,000 and $240,000, respectively. Current liabilities as of September 1 include $40,000 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 $55,000 will be made in October. Bridgeport's regular quarterly dividend of $25,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $50,000 Instructions 1. Prepare a monthly cash budget and supporting schedules for September October, and November Answert Check Figure: November deficiency, 5(8,500) On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?

Answer 1

ANSWER:

Summarized the inforamtion and the data provided in the question; the controller of Bridgeport Housewares Inc., ----

1) Monthly cash budget and supporting schedules for September, October and November :

Particulars Cash Sales @ 10% Credit sales @ 70% in the following month Credit sales @ 30% in the second following month Total Cash Collected September (9) October (9) November ($) 25,000 30,000 31,500 1,68,000 1,57,500 1,89,000 60,000 72,000 67,500 2,53,000 2,59,500 2,88,000 Manufacturing Cost Manufacturing Cost LESS: Depreciation, insurance, tax September ($) October (9) November ($) 150000 1,80,000 1850001 -50000 -50000 -50000 1,00,000 1,30,000 1,35,000 80,000 1,04,000 1,08,000 40,000 20,000 26,000 1,20,000 1,24,000 1,34,000 80% of Above 20% of Following Month Total Cash Expenses Estimated Cash receipts from Cash sales Collected from Accounts receivable Total Cash Receipts September ($) October (9) November ($) 25000 30,000 315001 2,28,000 2,29,500 2,56,500 2,53,000 2,59,500 2,88,000 September ($) October ($) November ($) 1,20,000 1,24,000 1,34,000 42,000 48,000 51,000 2,00,000 Estimated Cash Payments Manufacturing Cost Selling & Admin Expenses Capital Expenses Other Expenses Income tax Dividends Total Cash Expenses 55,000 25,000 4,10,000 1,62,000 2,27,000 Particulars Cash @ Opening Increase/(Decrease) of Cash Cash @ Closing September ($) October (9) November ($) 40,000 1,31,000 1,63,500 91,000 32,500 -1,22,000 1,31,000 1,63,500 41,500

*therefore balance should be maintained @ 50000 after november but it is 41500, there arises a deficit of 8500(50000-41500).

B September ($) =250000*10% = 240000*70% =200000*30% =SUM(B2:34) C October ($) =300000*10% -225000*70% =240000*30% =SUM(C2:04) D November ($) 1=315000*10% =270000*70% =225000*30% =SUM(D2:04) 1 Particulars 2 Cash Sales @ 10% 3 Credit sales @ 70% in the following month 4 Credit sales @ 30% in the second following month 5 Total Cash Collected 6 7 Manufacturing Cost 8 Manufacturing Cost 9 LESS: Depreciation, insurance, tax 10 11 80% of Above 12 20% of Following Month 13 Total Cash Expenses 14 15 16 Estimated Cash receipts from 17 Cash sales 18 Collected from Accounts receivable 19 Total Cash Receipts 20 =+B1 150000 -50000 =SUM(B8:B9) =+B10*80% =200000*20% =SUM(B11:B12) =+C1 180000 -50000 =SUM(C8:09) =+C10*80% =+B10*20% =SUM(C11:C12) =+D1 185000 -50000 =SUM(D8:09) =+D10*80% =+C10*20% =SUM(D11:D12) =+B7 25000 =+SUM(B3:B4) =SUM(B17:B18) =+C7 30000 I=+SUM(C3 C4) =SUM(C17-C18) =+D7 31500 =+SUM(D3:04) =SUM(D17D18) 21 =+B16 =+B13 42000 =+C16 =+C13 48000 =+D16 =+D13 51000 200000 22 23 Estimated Cash Payments 24 Manufacturing Cost 25 Selling & Admin Expenses 26 Capital Expenses 27 Other Expenses 28 Income tax 29 Dividends 30 Total Cash Expenses 31 55000 25000 =SUM(D24:D29) =SUM(B24:B29) =SUM(C24:C29) 32 33 Particulars 34 Cash @ Opening 35 Increase/Decrease) of Cash 36 Cash @ Closing 37 =+B23 40000 =+B19-B30 =SUM(B34:B35) =+C23 131000 =+C19-C30 =SUM(C34:C35) =+D23 163500 =+D19-D30 =SUM(D34:D35)

2) In order to maintain the balance of $50000 the conntroller should add $8,500 in the cash by withdrawing it from the bank.

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