8.10.11

Personal budget

At the beginning of the school year, Craig Kovar decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget:

Cash balance, September 1 (from a summer job)	$8,600
Purchase season football tickets in September	180
Additional entertainment for each month	280
Pay fall semester tuition in September	4,500
Pay rent at the beginning of each month	680
Pay for food each month	620
Pay apartment deposit on September 2 (to be returned December 15)	680
Part-time job earnings each month (net of taxes)	1,350

a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except cash decrease which should be indicated with a minus sign.

Craig Kovar
Cash Budget
For the Four Months Ending December 31
	September		October		November		December
Estimated cash receipts from:
Part-time job		_____		____		___		____
Deposit								____
Total cash receipts		____		_____		____		____
Less estimated cash payments for:
Season football tickets		____
Additional entertainment		____		____		____		_____
Tuition		____
Rent		____		____		____		____
Food		____		____		_____		____
Deposit		____
Total cash payments		$___		$____		$____		$____
Cash increase (decrease)		$____		$____		$____		$____
Plus cash balance at beginning of month		____		____		____		____
Cash balance at end of month		$____		$____		$____		$____

What are the budget implications for Craig Kovar?

Craig can see that his present plan will not provide sufficient cash. If Craig did not budget but went ahead with the original plan, he would be ____$ short at the end of December, with no time left to adjust.

Apply Similar Methods to a Service Company. Complete the following:

Digital Solutions Inc. uses flexible budgets that are based on the following data:

Sales commissions	7% of sales
Advertising expense	15% of sales
Miscellaneous administrative expense	$11,000 per month plus 6% of sales
Office salaries expense	$51,000 per month
Customer support expenses	$20,000 per month plus 31% of sales
Research and development expense	$74,000 per month

Prepare a flexible selling and administrative expenses budget for October for sales volumes of $500,000, $700,000, and $1,100,000. (Use Exhibit 5 as a model.) Enter all amounts as positive numbers.

Digital Solutions Inc.
Flexible Selling and Administrative Expenses Budget
For the Month Ending October 31
Total sales	$500,000		$700,000		$1,100,000
Variable cost:
Sales commissions		$____		$____		$____
Advertising expense		____		____		____
Miscellaneous administrative expense		_____		_____		____
Customer support expenses		___		_____		____
Total variable cost		$____		$____		$____
Fixed cost:
Miscellaneous administrative expense		$____		$____		$____
Office salaries expense		____		____		____
Customer support expenses		____		____		____
Research and development expense		_____		____		____
Total fixed cost		$____		$____		$____
Total selling and administrative expenses		$____		$____		$____