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 budget information:

	September		October		November
Sales	$134,000		$172,000		$212,000
Manufacturing costs	56,000		74,000		76,000
Selling and administrative expenses	47,000		52,000		81,000
Capital expenditures	_		_		51,000

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 $8,000 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 $51,000, marketable securities of $72,000, and accounts receivable of $149,100 ($32,100 from July sales and $117,000 from August sales). Sales on account for July and August were $107,000 and $117,000, respectively. Current liabilities as of September 1 include $8,000 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 $21,000 will be made in October. Bridgeports regular quarterly dividend of $8,000 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. Assume 360 days per year for interest calculations.

Bridgeport Housewares Inc.
Cash Budget
For the Three Months Ending November 30
	September	October	November
Estimated cash receipts from:
Cash sales	$fill in the blank 33442d088017fba_2	$fill in the blank 33442d088017fba_3	$fill in the blank 33442d088017fba_4
Collection of accounts receivable	fill in the blank 33442d088017fba_6	fill in the blank 33442d088017fba_7	fill in the blank 33442d088017fba_8
Total cash receipts	$fill in the blank 33442d088017fba_9	$fill in the blank 33442d088017fba_10	$fill in the blank 33442d088017fba_11
Less estimated cash payments for:
Manufacturing costs	$fill in the blank 33442d088017fba_13	$fill in the blank 33442d088017fba_14	$fill in the blank 33442d088017fba_15
Selling and administrative expenses	fill in the blank 33442d088017fba_17	fill in the blank 33442d088017fba_18	fill in the blank 33442d088017fba_19
Capital expenditures			fill in the blank 33442d088017fba_21
Other purposes:
Income tax		fill in the blank 33442d088017fba_23
Dividends			fill in the blank 33442d088017fba_25
Total cash payments	$fill in the blank 33442d088017fba_26	$fill in the blank 33442d088017fba_27	$fill in the blank 33442d088017fba_28
Cash increase or (decrease)	$fill in the blank 33442d088017fba_30	$fill in the blank 33442d088017fba_31	fill in the blank 33442d088017fba_32
Plus cash balance at beginning of month	fill in the blank 33442d088017fba_34	fill in the blank 33442d088017fba_35	fill in the blank 33442d088017fba_36
Cash balance at end of month	$fill in the blank 33442d088017fba_37	$fill in the blank 33442d088017fba_38	$fill in the blank 33442d088017fba_39
Less minimum cash balance	fill in the blank 33442d088017fba_41	fill in the blank 33442d088017fba_42	fill in the blank 33442d088017fba_43
Excess or (deficiency)	$fill in the blank 33442d088017fba_44	$fill in the blank 33442d088017fba_45	$fill in the blank 33442d088017fba_46

Feedback

The primary source of estimated cash receipts is from cash sales and collections on account.

To estimate cash receipts from cash sales and collections on account, a schedule of collections from sales is prepared.

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 will not be maintained in November. This situation can be corrected by borrowing and/or by the sale of the marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will exceed the minimum desired balance.