Cash Budget The controller of Bridgeport Housewares Inc. instructs you to prepar
ID: 2430024 • Letter: C
Question
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 budget information:
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.
Required:
1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Enter all amounts as positive values except for overall cash decrease and deficiency which should be indicated with a minus sign.
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 be maintained in November. This situation can be corrected by and/or by the of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will the minimum desired balance.
Check My Work
September October November Sales $250,000 $300,000 $315,000 Manufacturing costs 150,000 180,000 185,000 Selling and administrative expenses 42,000 48,000 51,000 Capital expenditures _ _ 200,000Explanation / Answer
Accounts receivable from July sales $60,000 Cash to be received in September fromJuly Sales $60,000 Accounts receivable from August sales $240,000 Sales in August $266,667 (240000/0.9) Amount received in August from August Sales $26,667 (266667*0.1) Amount to be received in September from August Sales $186,667 (266667*0.7) Amount to be received in October from August Sales $53,333 (266667*0.2) Manufacturing costs September October November Manufacturing costs $150,000 $180,000 $185,000 Cash not spent during the quarter $50,000 $50,000 $50,000 Net Cash Expense $100,000 $130,000 $135,000 Paid in the same month(80%) $80,000 $104,000 $108,000 Paid in the following month(20%) $40,000 $20,000 $26,000 TotalPayment on manufacturing cost $120,000 $124,000 $134,000 Bridgeport Housewares Inc. Cash Budget For the Three Months Ending November 30 September October November Sales $250,000 $300,000 $315,000 Estimated cash receipts from: Cash Sales(10%) $25,000 $30,000 $31,500 On Account sales of July $60,000 On Account sales of August $186,667 $53,333 On account sales of September $175,000 $50,000 On account sales of October $210,000 Total cash receipts $271,667 $258,333 $291,500 Less estimated cash payments for: Manufacturing Costs $120,000 $124,000 $134,000 Selling and administrative expenses $42,000 $48,000 $51,000 Capital expenditure $200,000 Other purposes: Income Tax payment $55,000 Quarterly dividend $25,000 Total cash payments $162,000 $227,000 $410,000 Excess/(Deficit) (Receipt minus payment) $109,667 $31,333 ($118,500) Beginning of the month Balance of Cash $40,000 $149,667 $181,000 Cash balance at end of month $149,667 $181,000 $62,500 Excess or (deficiency)(with respect tominimum) $99,667 $131,000 $12,500