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Chapter 22: 15RQ (page 1228)
What are the three sections of the cash budget?
Cash receipts, cash payments, and short-term financing are three sections of the cash budget.
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Describing master budget components
Sarah Edwards, division manager for Pillows Plus, is speaking to the controller, Diana Rothman, about the budgeting process. Sarah states, 鈥淚鈥檓 not an accountant, so can you explain the three main parts of the master budget to me and tell me their purpose?鈥� Answer Sarah鈥檚 question.
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?
What is the formula used to determine the amount of merchandise inventory to be purchased?
Preparing a financial budget鈥攕chedule of cash payments
Marcel Company has the following projected costs for manufacturing and selling and administrative expenses:
January February March Direct materials purchases \( 3,100 \) 3,500 $ 4,800 Direct labor costs 3,300 3,500 3,600 Depreciation on plant 550 550 550 Utilities for plant 650 650 650 Property taxes on plant 200 200 200 Depreciation on office 550 550 550 Utilities for office 250 250 250 Property taxes on office 170 170 170 Office salaries 3,500 3,500 3,500
All costs are paid in month incurred except: direct materials, which are paid in the month following the purchase; utilities, which are paid in the month after incurred; and property taxes, which are prepaid for the year on January 2. The Accounts Payable and Utilities Payable accounts have a zero balance on January 1. Prepare a schedule of cash payments for Marcel for January, February, and March. Determine the balances in Prepaid Property Taxes, Accounts Payable, and Utilities Payable as of March 31.
Preparing a financial budget鈥攕chedule of cash receipts, schedule of cash payments, cash budget
Beasley Company鈥檚 budget committee provides the following information:
December 31, 2017, account balances:
Cash \( 32,000 Accounts Receivable 19,000 Merchandise Inventory 16,000 Accounts Payable 15,000 Salaries and Commissions Payable 2,900 Budgeted amounts for 2018:
January February Sales, all on account \) 84,000 $ 84,400 Purchases, all on account 41,000 41,600 Commissions Expense 4,200 4,220 Salaries Expense 5,000 5,000 Rent Expense 2,200 2,200 Depreciation Expense 500 500 Insurance Expense 200 200 Income Tax Expense 1,900 1,900
Requirements
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 70% in the month of purchase and 30% in the month following the purchase.
3. Prepare the schedule of cash payments for selling and administrative expense for January and February 2018. Assume 25% of the accrual for Salaries and Commissions Payable is for commissions and 75% is for salaries. The December 31 balance will be paid in January. Salaries and commissions are paid 70% in the month incurred and 30% 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. Assume no financing took place.
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