The treasurer of Calico Dreams Company has accumulated the following budget information for the first two months of the coming fiscal year: March April Sales $450,000 $520,000 Manufacturing costs 290,000 350,000 Selling and administrative expenses 41,400 46,400 Capital additions 250,000 - The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80% are collected in full in the month of the sale and the remainder in the month following the sale. One-fourth of the manufacturing costs are paid in the month in which they are incurred and the other three-fourths in the following month. Depreciation, insurance, and property taxes represent $6,400 of the monthly selling and administrative expenses. Insurance is paid in February, and property taxes are paid yearly in September. A $40,000 installment on income taxes is to be paid in April. Of the remainder of the selling and administrative expenses, one-half is to be paid in the month in which they are incurred and the balance in the following month. Capital additions of $250,000 are paid in March. Current assets as of March 1 are composed of cash of $45,000 and accounts receivable of $51,000. Current liabilities as of March 1 are accounts payable of $121,500 ($102,000 for materials purchases and $19,500 for operating expenses). Management desires to maintain a minimum cash balance of $25,000. Required: Prepare a monthly cash budget for March and April.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The treasurer of Calico Dreams Company has accumulated the following budget information for the first two months of the coming fiscal year:

	March	April
Sales	$450,000	$520,000
Manufacturing costs	290,000	350,000
Selling and administrative expenses	41,400	46,400
Capital additions	250,000	-

The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80% are collected in full in the month of the sale and the remainder in the month following the sale. One-fourth of the manufacturing costs are paid in the month in which they are incurred and the other three-fourths in the following month. Depreciation, insurance, and property taxes represent $6,400 of the monthly selling and administrative expenses. Insurance is paid in February, and property taxes are paid yearly in September. A $40,000 installment on income taxes is to be paid in April. Of the remainder of the selling and administrative expenses, one-half is to be paid in the month in which they are incurred and the balance in the following month. Capital additions of $250,000 are paid in March.

Current assets as of March 1 are composed of cash of $45,000 and accounts receivable of $51,000. Current liabilities as of March 1 are accounts payable of $121,500 ($102,000 for materials purchases and $19,500 for operating expenses). Management desires to maintain a minimum cash balance of $25,000.

Required:

Prepare a monthly cash budget for March and April.

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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