Question

3.

Martin Company expects to have a cash balance of $136,500 on January 1, 2020. Relevant monthly budget data for the first 2 months of 2020 are as follows: • Collections from customers: January $243,200, February $430,900. • Payments for direct materials: January $154,400, February $236,400 • Direct labor: January $89,700, February $136,000. Wages are paid in the month they are incurred. • Manufacturing overhead: January $62,400, February $74,900. These costs include depreciation of $5,000 per month. All other overhead costs are paid as incurred. • Selling and administrative expenses: January $44.300. February $59,300. These costs are exclusive of depreciation. They are paid as incurred. Sales of marketable securities in January are expected to realize $36,200 in cash. Martin Company has a line of credit at the local bank that enables it to borrow up to $74,200. The company wants to maintain a minimum monthly cash balance of $59,700. Prepare a cash budget for January and February Martin Company Cash Budget For the Months Ending February 2020 January February

Answer 1

Martin Company
Cash Budget
For the Months Ending February 2020
	January	February
Beginning Cash Balance	$            136,500	$               70,100
Add: Receipts
Collections from Customers	243,200	430,900
Sale of Marketable Securities	36,200	0
Total Receipts	279,400	430,900
Total Available Cash	415,900	501,000
Less: Disbursements
Direct Materials	(154,400)	(236,400)
Direct Labor	(89,700)	(136,000)
Manufacturing Overhead (Note)	(57,400)	(69,900)
Selling and Administrative Expenses	(44,300)	(59,300)
Total Disbursements	(345,800)	(501,600)
Excess (Deficiency) of Available Cash over Cash Disbursements	70,100	(600)
Financing
Add: Borrowings	0	60,300
Less: Repayments	0	0
Ending Cash Balance	$             70,100	$               59,700

Note:

1)Manufacturing Overhead is been shown in the Cash Budget excluding Depreciation.

Therefore, Manufacturing Overhead for the month of January = $62,400 - $5,000(Depreciation) = $57,400

Manufacturing Overhead for the month of February = $74,900 - $5,000(Depreciation) = $69,900

2)Ending Cash Balance for the Month of January becomes the Beginning Cash Balance for the Month of February

3)There is a deficiency of Cash for the month of February for Martin Company by ($600). In order to maintain the ending cash balance, Martin Company can borrow from the local bank a sum of $60,300 to maintain the ending balance (Martin Company can borrow a maximum amount of $74,200 from the local bank)