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Chapter 22: Q17SE (page 1231)

Preparing a financial budget—cash budget

Wilson Company has \(11,000 in cash on hand on January 1 and has collected the following budget data:

January February Sales \) 1,400,000 \( 710,000 Cash receipts from customers 851,420 871,800 Cash payments for merchandise inventory 561,100 532,310

Assume Wilson has cash payments for selling and administrative expenses including salaries of \)55,000 plus commissions of 2% of sales, all paid in the month of sale. The company requires a minimum cash balance of $8,500. Prepare a cash budget for January and February. Will Wilson need to borrow cash by the end of February?

Short Answer

Expert verified

Answer

The total ending cash balance is $218,320 in the month of January and $488,610 in the month of February.

Step by step solution

01

Preparation of cash budget

Particulars

January

February

Beginning cash balance

$11,000

$218,320

Cash receipts

$851,420

$871,800

Cash available

$862,420

$1,090,120

Cash payments:



Cash payments for merchandise inventory

$561,100

$532,310

Selling and administrative expenses

$55,000

$55,000

Commission

$28,000

$14,200

Total cash payments

$644,100

$601,510

Ending cash balance before financing

$218,320

$488,610

02

Explanation

No, Wilson need not to borrow money by the end of February because it already has sufficient excess cash.

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Most popular questions from this chapter

Preparing a financial budget—schedule 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.

Match the budget types to the definitions.

Budget Types Definitions

5. Financial a. Includes sales, production, and cost of goods sold budgets

6. Flexible b. Long-term budgets

7. Operating c. Includes only one level of sales volume

8. Operational d. Includes various levels of sales volumes

9. Static e. Short-term budgets

10. Strategic f. Includes the budgeted financial statements

Question: Preparing an operating budget—sales budget; inventory, purchases and COGS budget; and S&A expense budget Burton Office Supply’s March 31, 2018, balance sheet follows:

The budget committee of Burton Office Supply has assembled the following data: a. Sales in April are expected to be \(200,000. Burton forecasts that monthly sales will increase 2% over April sales in May. June’s sales will increase by 4% over April sales. July sales will increase 20% over April sales. b. Burton maintains inventory of \)15,000 plus 25% of the cost of goods sold budgeted for the following month. Cost of goods sold equal 50% of sales revenue. c. Monthly salaries amount to \(7,000. Sales commissions equal 5% of sales for that month. d. Other monthly expenses are as follows: • Rent: \)2,000 • Depreciation: \(200 • Insurance: \)100 • Income tax: $2,200

Requirements

1. Prepare Burton’s sales budget for April and May 2018. Round all calculations to the nearest dollar.

2. Prepare Burton’s inventory, purchases, and cost of goods sold budget for April and May.

3. Prepare Burton’s selling and administrative expense budget for April and May.

What are the two types of manufacturing overhead? How do they affect the manufacturing overhead budget calculations?

Camp Company is a sporting goods store. The company sells a tent that sleeps six people. The store expects to sell 250 tents in 2018 and 280 tents in 2019. At the beginning of 2018, Camp Company has 25 tents in Merchandise Inventory and desires to have 5% of the next year’s sales available at the end of the year. How many tents will Camp Company need to purchase in 2018?
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