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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	$102,000		$130,000		$174,000
Manufacturing costs	43,000		56,000		63,000
Selling and administrative expenses	36,000		39,000		66,000
Capital expenditures	_		_		42,000

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 $9,000 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 $39,000, marketable securities of $55,000, and accounts receivable of $113,600 ($24,600 from July sales and $89,000 from August sales). Sales on account for July and August were $82,000 and $89,000, respectively. Current liabilities as of September 1 include $9,000 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 $16,000 will be made in October. Bridgeports regular quarterly dividend of $9,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $38,000.

Required:

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1. Prepare a monthly cash budget and supporting schedules for September, October, and November. Assume 360 days per year for interest calculations.

	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 b2af5bfcd00efb0_9	$fill in the blank b2af5bfcd00efb0_10	$fill in the blank b2af5bfcd00efb0_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 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 b2af5bfcd00efb0_26	$fill in the blank b2af5bfcd00efb0_27	$fill in the blank b2af5bfcd00efb0_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 b2af5bfcd00efb0_37	$fill in the blank b2af5bfcd00efb0_38	$fill in the blank b2af5bfcd00efb0_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 b2af5bfcd00efb0_44	$fill in the blank b2af5bfcd00efb0_45	$fill in the blank b2af5bfcd00efb0_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.

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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