Question

Cash Budget

The controller of Feinberg Company is gathering data to prepare the cash budget for July. He plans to develop the budget from the following information:

1. Of all sales, 40% are cash sales.
2. Of credit sales, 45% are collected within the month of sale. Half of the credit sales collected within the month receive a 2% cash discount (for accounts paid within 10 days). Thirty percent of credit sales are collected in the following month; remaining credit sales are collected the month thereafter. There are virtually no bad debts.
3. Sales for the second two quarters of the year follow. (Note: The first three months are actual sales, and the last three months are estimated sales.)

   	Sales
   April	$ 450,000
   May	580,000
   June	900,000
   July	1,140,000
   August	1,200,000
   September	1,134,000

4. The company sells all that it produces each month. The cost of raw materials equals 26% of each sales dollar. The company requires a monthly ending inventory of raw materials equal to the coming month's production requirements. Of raw materials purchases, 50% are paid for in the month of purchase. The remaining 50% is paid for in the following month.
5. Wages total $105,000 each month and are paid in the month incurred.
6. Budgeted monthly operating expenses total $376,000, of which $45,000 is depreciation and $6,000 is expiration of prepaid insurance (the annual premium of $72,000 is paid on January 1).
7. Dividends of $130,000, declared on June 30, will be paid on July 15.
8. Old equipment will be sold for $25,200 on July 4.
9. On July 13, new equipment will be purchased for $173,000.
10. The company maintains a minimum cash balance of $20,000.
11. The cash balance on July 1 is $27,000.

Required:

Prepare a cash budget for July. Give a supporting schedule that details the cash collections from sales.

Feinberg Company
Cash Budget
For the Month of July
Beginning cash balance	$
Collections:
Cash sales
Credit sales:
July:
With discount
Without discount
June
May
Sale of old equipment
Total cash available	$
Less disbursements:
Raw materials:
July	$
June
Direct labor
Operating expenses
Dividends
Equipment
Total disbursements	$
Minimum cash balance
Total cash needs	$
Excess of cash available over needs	$
Ending cash balance	$

Answer 1

Feinberg Company
Cash Budget
For the Month of July
Beginning cash balance	27000
Collections:
Cash sales (40% x $1140000)	456000
Credit sales:
July:
With discount (1/2 x $1140000 x 60% x 45% x 98%)	150822
Without discount (1/2 x $1140000 x 60% x 45%)	153900
June ($900000 x 60% x 30%)	162000
May ($580000 x 60% x 25%)	87000
Sale of old equipment	25200
Total cash available	1061922
Less disbursements:
Raw materials:
July	156000
June	148200
Direct labor	105000
Operating expenses ($376000 - $45000 - $6000)	325000
Dividends	130000
Equipment	173000
Total disbursements	1037200
Minimum cash balance	20000
Total cash needs	1057200
Excess of cash available over needs	4722
Ending cash balance	24722

Working:

Raw materials:

	April	May	June	July	August
Cost of goods sold (26% x $900000);(26% x $1140000);(26% x $1200000)	117000	150800	234000	296400	312000
Add: Desired ending inventory	150800	234000	296400	312000
Total needs	267800	384800	530400	608400
Less: Beginning inventory		150800	234000	296400
Purchases		234000	296400	312000
Paid in July (50% x $296400);(50% x $312000)			148200	156000