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	$135,000		$166,000		$228,000
Manufacturing costs	57,000		71,000		82,000
Selling and administrative expenses	47,000		50,000		87,000
Capital expenditures	_		_		55,000

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 $51,000, marketable securities of $73,000, and accounts receivable of $150,400 ($32,400 from July sales and $118,000 from August sales). Sales on account for July and August were $108,000 and $118,000, 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 $20,000 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 $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 fed609089073fbc_2	$fill in the blank fed609089073fbc_3	$fill in the blank fed609089073fbc_4
Collection of accounts receivable	fill in the blank fed609089073fbc_6	fill in the blank fed609089073fbc_7	fill in the blank fed609089073fbc_8
Total cash receipts	$fill in the blank fed609089073fbc_9	$fill in the blank fed609089073fbc_10	$fill in the blank fed609089073fbc_11
Less estimated cash payments for:
Manufacturing costs	$fill in the blank fed609089073fbc_13	$fill in the blank fed609089073fbc_14	$fill in the blank fed609089073fbc_15
Selling and administrative expenses	fill in the blank fed609089073fbc_17	fill in the blank fed609089073fbc_18	fill in the blank fed609089073fbc_19
Capital expenditures			fill in the blank fed609089073fbc_21
Other purposes:
Income tax		fill in the blank fed609089073fbc_23
Dividends			fill in the blank fed609089073fbc_25
Total cash payments	$fill in the blank fed609089073fbc_26	$fill in the blank fed609089073fbc_27	$fill in the blank fed609089073fbc_28
Cash increase or (decrease)	$fill in the blank fed609089073fbc_30	$fill in the blank fed609089073fbc_31	fill in the blank fed609089073fbc_32
Plus cash balance at beginning of month	fill in the blank fed609089073fbc_34	fill in the blank fed609089073fbc_35	fill in the blank fed609089073fbc_36
Cash balance at end of month	$fill in the blank fed609089073fbc_37	$fill in the blank fed609089073fbc_38	$fill in the blank fed609089073fbc_39
Less minimum cash balance	fill in the blank fed609089073fbc_41	fill in the blank fed609089073fbc_42	fill in the blank fed609089073fbc_43
Excess or (deficiency)	$fill in the blank fed609089073fbc_44	$fill in the blank fed609089073fbc_45	$fill in the blank fed609089073fbc_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 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.

Another Problem:

Budgeted Income Statement and Balance Sheet

As a preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January 1, 20Y9, the following tentative trial balance as of December 31, 20Y8, is prepared by the Accounting Department of Regina Soap Co.:

Cash	$104,000
Accounts Receivable	199,700
Finished Goods	41,900
Work in Process	28,000
Materials	45,900
Prepaid Expenses	3,400
Plant and Equipment	511,700
Accumulated DepreciationPlant and Equipment			$220,000
Accounts Payable			181,200
Common Stock, $10 par			250,000
Retained Earnings			283,400
	$934,600		$934,600

Factory output and sales for 20Y9 are expected to total 25,000 units of product, which are to be sold at $120 per unit. The quantities and costs of the inventories at December 31, 20Y9, are expected to remain unchanged from the balances at the beginning of the year.

Budget estimates of manufacturing costs and operating expenses for the year are summarized as follows:

	Estimated Costs and Expenses
	Fixed (Total for Year)		Variable (Per Unit Sold)
Cost of goods manufactured and sold:
Direct materials	_		$30
Direct labor	_		9.5
Factory overhead:
Depreciation of plant and equipment	$25,000		_
Other factory overhead	7,800		5.5
Selling expenses:
Sales salaries and commissions	89,800		15
Advertising	75,000		_
Miscellaneous selling expense	6,500		2.5
Administrative expenses:
Office and officers salaries	59,000		7.5
Supplies	3,000		1
Miscellaneous administrative expense	1,600		2

Balances of accounts receivable, prepaid expenses, and accounts payable at the end of the year are not expected to differ significantly from the beginning balances. Federal income tax of $272,200 on 20Y9 taxable income will be paid during 20Y9. Regular quarterly cash dividends of $1 per share are expected to be declared and paid in March, June, September, and December on 25,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $138,000 cash in May.

Required:

1. Prepare a budgeted income statement for 20Y9.

Regina Soap Co.
Budgeted Income Statement
For the Year Ending December 31, 20Y9
			$fill in the blank 0fd050fa9058fd7_2
Cost of goods sold:
		$fill in the blank 0fd050fa9058fd7_4
		fill in the blank 0fd050fa9058fd7_6
		fill in the blank 0fd050fa9058fd7_8
Cost of goods sold			fill in the blank 0fd050fa9058fd7_9
Gross profit			$fill in the blank 0fd050fa9058fd7_10
Operating expenses:
Selling expenses:
	$fill in the blank 0fd050fa9058fd7_12
	fill in the blank 0fd050fa9058fd7_14
	fill in the blank 0fd050fa9058fd7_16
Total selling expenses		$fill in the blank 0fd050fa9058fd7_17
Administrative expenses:
	$fill in the blank 0fd050fa9058fd7_19
	fill in the blank 0fd050fa9058fd7_21
	fill in the blank 0fd050fa9058fd7_23
Total administrative expenses		fill in the blank 0fd050fa9058fd7_24
Total operating expenses			fill in the blank 0fd050fa9058fd7_25
Income before income tax			$fill in the blank 0fd050fa9058fd7_26
			fill in the blank 0fd050fa9058fd7_28
			$fill in the blank 0fd050fa9058fd7_30

Feedback

Use information from the expected sales, cost of goods manufactured and sold, and selling and administrative expenses.

2. Prepare a budgeted balance sheet as of December 31, 20Y9.

Regina Soap Co. Budgeted Balance Sheet December 31, 20Y9
Assets
Current assets:
		$fill in the blank 1c652b02efeffdb_2
		fill in the blank 1c652b02efeffdb_4
Inventories:
	$fill in the blank 1c652b02efeffdb_6
	fill in the blank 1c652b02efeffdb_8
	fill in the blank 1c652b02efeffdb_10	fill in the blank 1c652b02efeffdb_11
		fill in the blank 1c652b02efeffdb_13
Total current assets			$fill in the blank 1c652b02efeffdb_14
Property, plant, and equipment:
		$fill in the blank 1c652b02efeffdb_16
		fill in the blank 1c652b02efeffdb_18
Total property, plant, and equipment			fill in the blank 1c652b02efeffdb_19
Total assets			$fill in the blank 1c652b02efeffdb_20
Liabilities
Current liabilities:
			$fill in the blank 1c652b02efeffdb_22
Stockholders' Equity
		$fill in the blank 1c652b02efeffdb_24
		fill in the blank 1c652b02efeffdb_26
Total stockholders equity			fill in the blank 1c652b02efeffdb_27
Total liabilities and stockholders equity			$fill in the blank 1c652b02efeffdb_28