Cash Budget

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 budgetinformation:

	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. Bridgeports 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.

Bridgeport Housewares Inc. Cash Budget For the Three Months Ending November 30

	September	October	November
Estimated cash receipts from:
Capital expendituresCash increase or (decrease)Cash salesDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balanceManufacturing costsPlus cash balance at beginning of monthPlus minimum cash balance	$- Select -	$- Select -	$- Select -
Capital expendituresCash increase or (decrease)Collection of accounts receivableDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balanceManufacturing costsPlus cash balance at beginning of monthPlus minimum cash balance	- Select -	- Select -	- Select -
Total cash receipts	$fill in the blank c3a045084041039_9	$fill in the blank c3a045084041039_10	$fill in the blank c3a045084041039_11
Less estimated cash payments for:
Capital expendituresCash increase or (decrease)Collection of accounts receivableDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balanceManufacturing costsPlus cash balance at beginning of monthPlus minimum cash balance	$- Select -	$- Select -	$- Select -
Capital expendituresCash increase or (decrease)Collection of accounts receivableDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balancePlus cash balance at beginning of monthPlus minimum cash balanceSelling and administrative expenses	- Select -	- Select -	- Select -
Capital expendituresCash increase or (decrease)Collection of accounts receivableDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balancePlus cash balance at beginning of monthPlus minimum cash balanceSelling and administrative expenses			- Select -
Other purposes:
Capital expendituresCash increase or (decrease)Collection of accounts receivableDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balancePlus cash balance at beginning of monthPlus minimum cash balanceSelling and administrative expenses		- Select -
Capital expendituresCash increase or (decrease)Collection of accounts receivableDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balancePlus cash balance at beginning of monthPlus minimum cash balanceSelling and administrative expenses			- Select -
Total cash payments	$fill in the blank c3a045084041039_26	$fill in the blank c3a045084041039_27	$fill in the blank c3a045084041039_28
Capital expendituresCash increase or (decrease)Collection of accounts receivableDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balancePlus cash balance at beginning of monthPlus minimum cash balanceSelling and administrative expenses	$- Select -	$- Select -	$- Select -
Capital expendituresCash increase or (decrease)Collection of accounts receivableDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balancePlus cash balance at beginning of monthPlus minimum cash balanceSelling and administrative expenses	- Select -	- Select -	- Select -
Cash balance at end of month	$fill in the blank c3a045084041039_37	$fill in the blank c3a045084041039_38	$fill in the blank c3a045084041039_39
Capital expendituresCash increase or (decrease)Collection of accounts receivableDividendsIncome taxLess cash balance at beginning of monthLess minimum cash balancePlus cash balance at beginning of monthPlus minimum cash balanceSelling and administrative expenses	- Select -	- Select -	- Select -
Excess or (deficiency)	$fill in the blank c3a045084041039_44	$fill in the blank c3a045084041039_45	$fill in the blank c3a045084041039_46

2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?

The budget indicates that the minimum cash balance

willwill not

be maintained in November. This situation can be corrected by

investingborrowing

and/or by the

purchasesale

of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will

exceedbe short of

the minimum desired balance.