Cullumber Company expects to have a cash balance of $61,650 on January 1, 2017.

Question

Cullumber Company expects to have a cash balance of $61,650 on January 1, 2017. These are the relevant monthly budget data for the first two months of 2017.

Prepare a cash budget for January and February.

1. Collections from customers: January $86,650, February $161,650. 2. Payments to suppliers: January $55,650, February $90,650. 3. Wages: January $30,490, February $40,490. Wages are paid in the month they are incurred. 4. Administrative expenses: January $21,490, February $24,490. These costs include depreciation of $1,000 per month. All other costs are paid as incurred. 5. Selling expenses: January $15,490, February $20,490. These costs are exclusive of depreciation. They are paid as incurred. 6. Sales of short-term investments in January are expected to realize $12,490 in cash. Cullumber Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $35,650.

Explanation / Answer

The cash budget for two months is shown as follows:-

Cullumber Company

Cash Budget

For the month of January and February (Amounts in $)

Particulars January February Beginning Balance (A) 61,650 43,670 Add: Cash Receipts Collections from customers 86,650 161,650 Sale of Marketable securities 12,490 0 Total Cash Receipts (B) 99,140 161,650 Total Cash Available (C = A+B) 160,790 205,320 Less: Cash Disbursements Payments to suppliers 50,650 90,650 Wages paid 30,490 40,490 Administrative Expenses Paid (exluding depreciation $1,000) 20,490 23,490 Selling Expenses 15,490 20,490 Total Cash Disbursements (D) 117,120 175,120 Excess or (Deficiency) of cash ( E = C - D) 43,670 30,200 Financing: Add: Borrowings 0 5,450 ($35,650 minimum bal - $30,200) Less: Repayments 0 0 Closing Cash Balance 43,670 35,650

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