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 $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 _ _ 200,000
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 $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.
Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
September October November
Estimated cash receipts from:
Cash sales $ $ $
Total cash receipts $ $ $
Less estimated cash payments for:
Manufacturing costs $ $ $
Selling and administrative expenses
Capital expenditures
Other purposes:
Income tax
Dividends
Total cash payments $ $ $
$ $ $
Less cash balance at beginning of month
Cash balance at end of month $ $ $
Plus minimum cash balance
Excess or (deficiency) $ $ $
2. The budget indicates that the minimum cash balance (will or will not) be maintained in November. This situation can be corrected by (inevesting or borrwing) and/or by the (purchase or sale) of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will (exceed or be sort of) the minimum desired balance.