Question

Preparing a financial budget—cash 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

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

Step-by-step solution

Meaning of financial budget

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

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