The treasurer of Systems Company has accumulated the following budget informatio
ID: 2385069 • Letter: T
Question
The treasurer of Systems Company has accumulated the following budget information for the first two months of the coming 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 expected to be 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 expected to be 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 probable monthly selling and administrative expenses. Insurance is paid in February and a $40,000 installment on income taxes is expected to be paid in April. Of the remainder of the selling and administrative expenses, one-half are expected to be paid in the month in which they are incurred and the balance in the following month. Capital additions of $250,000 are expected to be 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 composed of 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 $20,000.
Prepare a monthly cash budget for March and April.
Explanation / Answer
Monthly cash budget for March and April.
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March April
Budgeted Cash Receipts :
Cash Sales
$450,000 x 35% $157,500
$520,000 x 35% $182,000
Collections of A/R
($450,000x65%x80%) + $51,000 $285,000
($520,000x65%x80%) +
($450,000x65%x20%) $328,900
Total Receipts $442,500 $510,900
Budgeted Cash Payments
Manufacturing costs
($290,000 x1/4)+$102,000 $174,500
($350,000x1/4)+($290,000x3/4) $305,000
Selling & Administrative expenses
($41,400-$6,400)/2 + $19,500 $37,000
($46,400-$6,400)/2 + $19,500 $37,500
Capital additions $250,000 ----
Income Taxes ---- $40,000
Total Cash payments $461,500 $382,500
Cash Increase / (decrease) ($19,000) $128,400
Beginning cash balance $45,000 $26,000
Ending cash balance $26,000 $154,400
Minimum Cash balance required $20,000 $20,000
Excess / (deficiency) $6,000 $134,400
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