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 $120,000 $145,000 $192,000 Manufacturing costs 50,000 62,000 69,000 Selling and administrative 42,000 44,000 73,000 expenses Capital expenditures 46,000 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 $9,000 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 $46,000, marketable securities of $65,000, and accounts receivable of $133,800 ($28,800 from July sales and $105,000 from August sales). Sales on account for July and August were $96,000 and $105,000, respectively. Current liabilities as of September 1 include $9,000 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 $17,000 will be made in October. Bridgeport's regular quarterly dividend of $9,000 is expected to be declared in October and paid in November. Management desires to maintain minimum cash balance of $45,000.
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 $120,000 $145,000 $192,000 Manufacturing costs 50,000 62,000 69,000 Selling and administrative 42,000 44,000 73,000 expenses Capital expenditures 46,000 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 $9,000 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 $46,000, marketable securities of $65,000, and accounts receivable of $133,800 ($28,800 from July sales and $105,000 from August sales). Sales on account for July and August were $96,000 and $105,000, respectively. Current liabilities as of September 1 include $9,000 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 $17,000 will be made in October. Bridgeport's regular quarterly dividend of $9,000 is expected to be declared in October and paid in November. Management desires to maintain minimum cash balance of $45,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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
$120,000
$145,000
$192,000
Manufacturing costs
50,000
62,000
69,000
Selling and administrative
42,000
44,000
73,000
expenses
Capital expenditures
46,000
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 $9,000 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 $46,000, marketable securities of $65,000, and accounts receivable of $133,800 ($28,800 from July sales and $105,000 from August sales). Sales on account for July
and August were $96,000 and $105,000, respectively. Current liabilities as of September 1 include $9,000 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 $17,000 will be made in October. Bridgeport's regular quarterly dividend of $9,000 is expected to be declared in October and paid in
November. Management desires to maintain a minimum cash balance of $45,000.
Transcribed Image Text: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:
Plus cash balance at beginning of month
$
Collection of accounts receivable
Total cash receipts
$
Less estimated cash payments for:
Collection of accounts receivable
Income tax
Dividends
Other purposes:
Selling and administrative expenses
Capital expenditures
Total cash payments
$
Plus cash balance at beginning of month
Plus minimum cash balance
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
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.
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