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	$97,000		$125,000		$157,000
Manufacturing costs	41,000		54,000		57,000
Selling and administrative expenses	34,000		38,000		60,000
Capital expenditures	_		_		38,000

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 $10,000 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 $37,000, marketable securities of $52,000, and accounts receivable of $108,400 ($23,400 from July sales and $85,000 from August sales). Sales on account for July and August were $78,000 and $85,000, respectively. Current liabilities as of September 1 include $10,000 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 $15,000 will be made in October. Bridgeports regular quarterly dividend of $10,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $36,000.

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:
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 balanceCash sales	$Cash sales	$Cash sales	$Cash sales
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 balanceCollection of accounts receivable	Collection of accounts receivable	Collection of accounts receivable	Collection of accounts receivable
Total cash receipts	$fill in the blank fc2e2d036fb006d_9	$fill in the blank fc2e2d036fb006d_10	$fill in the blank fc2e2d036fb006d_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 balanceManufacturing costs	$Manufacturing costs	$Manufacturing costs	$Manufacturing costs
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 expensesSelling and administrative expenses	Selling and administrative expenses	Selling and administrative expenses	Selling and administrative expenses
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 expensesCapital expenditures			Capital expenditures
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 expensesIncome tax		Income tax
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 expensesDividends			Dividends
Total cash payments	$fill in the blank fc2e2d036fb006d_26	$fill in the blank fc2e2d036fb006d_27	$fill in the blank fc2e2d036fb006d_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 expensesCash increase or (decrease)	$Cash increase or (decrease)	$Cash increase or (decrease)	Cash increase or (decrease)
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 expensesPlus cash balance at beginning of month	Plus cash balance at beginning of month	Plus cash balance at beginning of month	Plus cash balance at beginning of month
Cash balance at end of month	$fill in the blank fc2e2d036fb006d_37	$fill in the blank fc2e2d036fb006d_38	$fill in the blank fc2e2d036fb006d_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 expensesLess minimum cash balance	Less minimum cash balance	Less minimum cash balance	Less minimum cash balance
Excess or (deficiency)	$fill in the blank fc2e2d036fb006d_44	$fill in the blank fc2e2d036fb006d_45	$fill in the blank fc2e2d036fb006d_46

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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

willwill notwill not

be maintained in November. This situation can be corrected by

investingborrowingborrowing

and/or by the

purchasesalesale

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

exceedbe short ofexceed

the minimum desired balance.