Cash Budget
The controller of Bridgeport Housewares Inc. instructs you toprepare a monthly cash budget for the next three months. You arepresented with the following budget information:
| September | October | November |
| Sales | $91,000 | | $117,000 | | $145,000 | |
| Manufacturing costs | 38,000 | | 50,000 | | 52,000 | |
| Selling and administrative expenses | 32,000 | | 35,000 | | 55,000 | |
| Capital expenditures | _ | | _ | | 35,000 | |
The company expects to sell about 10% of its merchandise forcash. Of sales on account, 70% are expected to be collected in themonth following the sale and the remainder the following month(second month following sale). Depreciation, insurance, andproperty tax expense represent $9,000 of the estimated monthlymanufacturing costs. The annual insurance premium is paid inJanuary, and the annual property taxes are paid in December. Of theremainder of the manufacturing costs, 80% are expected to be paidin the month in which they are incurred and the balance in thefollowing month.
Current assets as of September 1 include cash of $35,000,marketable securities of $49,000, and accounts receivable of$101,900 ($80,000 from July sales and $21,900 from August sales).Sales on account for July and August were $73,000 and $80,000,respectively. Current liabilities as of September 1 include $9,000of accounts payable incurred in August for manufacturing costs. Allselling and administrative expenses are paid in cash in the periodthey are incurred. An estimated income tax payment of $14,000 willbe 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$34,000.
Required:
1. Prepare a monthly cash budget and supportingschedules for September, October, and November. Input all amountsas positive values except overall cash decrease and deficiencywhich should be indicated with a minus sign. Assume 360 days peryear for interest calculations.
| Bridgeport Housewares Inc. |
| Cash Budget |
| For the Three Months Ending November 30 |
| September | October | November |
| Estimated cash receipts from: | | | |
| $ | $ | $ |
| | | |
| Total cash receipts | $ | $ | $ |
| Less estimated cash payments for: | | | |
| $ | $ | $ |
| | | |
| | | |
| Other purposes: | | | |
| | | |
| | | |
| Total cash payments | $ | $ | $ |
| $ | $ | $ |
| | | |
| Cash balance at end of month | $ | $ | $ |
| | | |
| Excess or (deficiency) | $ | $ | $ |
2. On the basis of the cash budget prepared inpart (1), what recommendation should be made to the controller?
The budget indicates that the minimum cashbalance be maintained in November. This situationcan be corrected by and/or bythe of the marketable securities, if they are heldfor such purposes. At the end of September and October, the cashbalance will the minimum desired balance.
