Preparing a Cash Budget La Famiglia Pizzeria provided the following information
ID: 2536007 • Letter: P
Question
Preparing a Cash Budget
La Famiglia Pizzeria provided the following information for the month of October:
Sales are budgeted to be $163,000. About 85% of sales is cash; the remainder is on account.
La Famiglia expects that, on average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month.
Food and supplies purchases, all on account, are expected to be $108,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.
Most of the work is done by the owners, who typically withdraw $6,000 a month from the business as their salary. (Note: The $6,000 is a payment in total to the two owners, not per person.) Various part-time workers cost $7,300 per month. They are paid for their work weekly, so on average 90% of their wages are paid in the month incurred and the remaining 10% in the next month.
Utilities average $5,950 per month. Rent on the building is $4,100 per month.
Insurance is paid quarterly; the next payment of $1,300 is due in October.
September sales were $181,500 and purchases of food and supplies in September equaled $130,000.
The cash balance on October 1 is $2,147.
Required:
If required, round your answers to the nearest dollar.
1. Calculate the cash receipts expected in October.
$
2. Calculate the cash needed in October to pay for food purchases.
$
3. Prepare a cash budget for the month of October.
La Famiglia Pizzeria Cash budget For the month of October Beginning balance $ Cash receipts Cash available $ Less: Payments for food and supplies purchases $ Owners' draw Workers' wages Utilities Rent Insurance Total disbursements $ Ending balance $Explanation / Answer
SOLUTION
(A) Cash receipts-
* *$181,500 * 0.15 * 28% = $7,623
** $163,000 0.15 * 70% = $17,115
(B) Cash needed-
(C) Cash Budget-
Amount ($) Cash receipts in October from: Cash sales ($163,000 * 85% cash) 138,550 Payments on September credit sales* 7,623 Payments on October credit sales ** 17,115 Total cash expected 163,288