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Chapter 22: 11SE (page 1230)

Preparing a financial budget鈥攃ash budget

Booth has \(12,500 in cash on hand on January 1 and has collected the following budget data:

January February

Sales \) 529,000 \( 568,000

Cash receipts from customers 443,000 502,200

Cash payments for direct materials purchases 180,624 160,284

Direct labor costs 135,010 113,348

Manufacturing overhead costs (includes

depreciation of \)900 per month) 55,058 53,922

Assume direct labor costs and manufacturing overhead costs are paid in the month incurred. Additionally, assume Booth has cash payments for selling and administrative expenses including salaries of \(40,000 per month plus commissions that are 1% of sales, all paid in the month of sale. The company requires a minimum cash balance of \)20,000. Prepare a cash budget for January and February. Round to the nearest dollar. Will Booth need to borrow cash by the end of February?

Short Answer

Expert verified

The ending cash balance is $30,418 and $160,284 for January and February respectively.

Step by step solution

01

Meaning of financial budget

A financial budget is a budget that includes a cash budget and budgeted financial statements.

02

Schedule of cash receipts from customers

Particulars

January

February

Beginning cash balance

$12,500

$30,418

Cash receipts

$443,000

$502,200

Cash available

$445,500

$532,618

Cash payments:

Direct material purchase

$180,624

$160,284

Direct labor cost

$135,010

$113,348

Manufacturing overheads

$54,158

$53,022

Administration expenses and salaries

$40,000

$40,000

Commission

$5,290

$5,680

Total cash payments

$415,082

$372,334

Ending cash balance

$30,418

$160,284

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Most popular questions from this chapter

Question: Preparing a financial budget鈥攕chedule of cash receipts, schedule cash payments, cash budget

Baxter Company鈥檚 budget committee provides the following information: December 31, 2017, account balances:

1. Prepare the schedule of cash receipts from customers for January and February 2018. Assume cash receipts are 80% in the month of the sale and 20% in the month following the sale.

2. Prepare the schedule of cash payments for purchases for January and February 2018. Assume purchases are paid 60% in the month of purchase and 40% in the month following the purchase.

3. Prepare the schedule of cash payments for selling and administrative expenses for January and February 2018. Assume 40% of the accrual for Salaries and Commissions Payable is for commissions and 60% is for salaries. The December 31 balance will be paid in January. Salaries and commissions are paid 30% in the month incurred and 70% in the following month. Rent and income tax expenses are paid as incurred. Insurance expense is an expiration of the prepaid amount.

4. Prepare the cash budget for January and February 2018. Assume no financing took place.

Question: Preparing a financial budget鈥攕chedule of cash receipts, schedule of cash payments, cash budget

Puckett Company has provided the following budget information for the first quarter of 2018:

Total sales \( 216,000

Budgeted purchases of direct materials 40,600

Budgeted direct labor cost 36,800 Budgeted manufacturing overhead costs:

Variable manufacturing overhead 1,025

Depreciation 1,000

Insurance and property taxes 6,650

Budgeted selling and administrative expenses:

Salaries expense 14,000

Rent expense 2,500

Insurance expense 2,000

Depreciation expense 350

Supplies expense 4,320

Additional data related to the first quarter of 2018 for Puckett Company:

a. Capital expenditures include \)41,000 for new manufacturing equipment to be purchased and paid in the first quarter.

b. Cash receipts are 75% of sales in the quarter of the sale and 25% in the quarter following the sale.

c. Direct materials purchases are paid 50% in the quarter purchased and 50% in the next quarter.

d. Direct labor, manufacturing overhead, and selling and administrative costs are paid in the quarter incurred.

e. Income tax expense for the first quarter is projected at \(49,000 and is paid in the quarter incurred.

f. Puckett Company expects to have adequate cash funds and does not anticipate borrowing in the first quarter.

g. The December 31, 2017, balance in Cash is \)25,000, in Accounts Receivable is \(21,600, and in Accounts Payable is \)16,500.

Requirements

1. Prepare Puckett Company鈥檚 schedule of cash receipts from customers and schedule of cash payments for the first quarter of 2018.

2. Prepare Puckett Company鈥檚 cash budget for the first quarter of 2018.

Preparing the financial budget鈥攃ash budget Hoppy Company requires a minimum cash balance of $3,500. When the company expects a cash deficiency, it borrows the exact amount required on the first of the month. Expected excess cash is used to repay any amounts owed. Interest owed from the previous month鈥檚 principal balance is paid on the first of the month at 14% per year. The company has already completed the budgeting process for the first quarter for cash receipts and cash payments for all expenses except interest. Hoppy does not have any outstanding debt on January 1. Complete the cash budget for the first quarter for Hoppy Company. Round interest expense to the nearest whole dollar.

Preparing a financial budget鈥攕chedule of cash payments

Barnes Company budgeted direct materials purchases of \(191,990 in January and \)138,610 in February. Assume Barnes pays for direct materials purchases 60% in the month of purchase and 40% in the month after purchase. The Accounts Payable balance on January 1 is $75,000. Prepare a schedule of cash payments for purchases for January and February. Round to the nearest dollar.

Explain the difference between static and flexible budgets.
See all solutions

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