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:   September October November Sales $119,000   $149,000   $202,000   Manufacturing costs 50,000   64,000   73,000   Selling and administrative expenses 42,000   45,000   77,000   Capital expenditures _   _   48,000   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 $7,000 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 $45,000, marketable securities of $64,000, and accounts receivable of $132,500 ($104,000 from July sales and $28,500 from August sales). Sales on account for July and August were $95,000 and $104,000, respectively. Current liabilities as of September 1 include $7,000 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 $18,000 will be made in October. Bridgeport’s regular quarterly dividend of $7,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $44,000. Required: 1.  Prepare a monthly cash budget and supporting schedules for September, October, and November. 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:       Cash sales  $ $ $ Collection of accounts receivable        Total cash receipts $ $ $ Less 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) $ $ $ 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 not  be maintained in November. This situation can be corrected by investing  and/or by the purchase  of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will exceed  the minimum desired balance.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
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:

  September October November
Sales $119,000   $149,000   $202,000  
Manufacturing costs 50,000   64,000   73,000  
Selling and administrative expenses 42,000   45,000   77,000  
Capital expenditures _   _   48,000  

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 $7,000 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 $45,000, marketable securities of $64,000, and accounts receivable of $132,500 ($104,000 from July sales and $28,500 from August sales). Sales on account for July and August were $95,000 and $104,000, respectively. Current liabilities as of September 1 include $7,000 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 $18,000 will be made in October. Bridgeport’s regular quarterly dividend of $7,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $44,000.

Required:

1.  Prepare a monthly cash budget and supporting schedules for September, October, and November. 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:      
Cash sales  $ $ $
Collection of accounts receivable       
Total cash receipts $ $ $
Less 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) $ $ $

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

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 3 images

Blurred answer
Knowledge Booster
Budgeting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education