Martin Company expects to have a cash balance of $135,000 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows: Collections from customers: January $246,500, February $435,000. Payments for direct materials: January $155,000, February $240,000 Direct labor: January $90,000, February $135,000. Wages are paid in the month they are incurred. Manufacturing overhead: January $63,000, February $75,000. These costs include depreciation of $5,000 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January $45,000, February $60,000. These costs are exclusive of depreciation. They are paid as incurred. Sales of marketable securities in January are expected to realize $36,000 in cash. Martin Company has a line of credit at the local bank that enables it to borrow up to $75,000. The company wants to maintain a minimum monthly cash balance of $60,000. Instructions (a) Prepare a cash budget for January and February. (b) Martin Company’s chief financial officer feels that it is important to have data for the entire quarter especially since their financial forecasts indicate some difficult economic periods in the coming year. March information has been budgeted as follows: Collections from customers: $375,000 Payments for direct materials: $206,000 Direct labor: Wages paid in March $116,000 Manufacturing overhead: $64,500. This includes the monthly depreciation of $5,000. Selling and administrative expenses: $51,600. This cost is exclusive of depreciation. Marketable securities of $50,000 can be sold if needed for additional cash. Prepare a cash budget for March assuming that the company does not sell the marketable securities. Prepare a cash budget for March assuming that the company sells the marketable securities QUESTIONS: What is the maximum amount the company can borrow during March if the company does not sell the marketable securities? Does this provide the company with an adequate ending cash balance? Explain in detail. Comment on the status of the company’s cash budget for March with or without selling the marketable securities. Detail any concerns and possible resolution to identified issues.

Martin Company expects to have a cash balance of $135,000 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows: Collections from customers: January $246,500, February $435,000. Payments for direct materials: January $155,000, February $240,000 Direct labor: January $90,000, February $135,000. Wages are paid in the month they are incurred. Manufacturing overhead: January $63,000, February $75,000. These costs include depreciation of $5,000 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January $45,000, February $60,000. These costs are exclusive of depreciation. They are paid as incurred. Sales of marketable securities in January are expected to realize $36,000 in cash. Martin Company has a line of credit at the local bank that enables it to borrow up to $75,000. The company wants to maintain a minimum monthly cash balance of $60,000. Instructions (a) Prepare a cash budget for January and February. (b) Martin Company’s chief financial officer feels that it is important to have data for the entire quarter especially since their financial forecasts indicate some difficult economic periods in the coming year. March information has been budgeted as follows: Collections from customers: $375,000 Payments for direct materials: $206,000 Direct labor: Wages paid in March $116,000 Manufacturing overhead: $64,500. This includes the monthly depreciation of $5,000. Selling and administrative expenses: $51,600. This cost is exclusive of depreciation. Marketable securities of $50,000 can be sold if needed for additional cash. Prepare a cash budget for March assuming that the company does not sell the marketable securities. Prepare a cash budget for March assuming that the company sells the marketable securities QUESTIONS: What is the maximum amount the company can borrow during March if the company does not sell the marketable securities? Does this provide the company with an adequate ending cash balance? Explain in detail. Comment on the status of the company’s cash budget for March with or without selling the marketable securities. Detail any concerns and possible resolution to identified issues.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter8: Budgeting

Section: Chapter Questions

Problem 5PB: Cash budget The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for...

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Question

Martin Company expects to have a cash balance of $135,000 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows:

Collections from customers: January $246,500, February $435,000.
Payments for direct materials: January $155,000, February $240,000
Direct labor: January $90,000, February $135,000. Wages are paid in the month they are incurred.
Manufacturing overhead: January $63,000, February $75,000. These costs include depreciation of $5,000 per month. All other overhead costs are paid as incurred.
Selling and administrative expenses: January $45,000, February $60,000. These costs are exclusive of depreciation. They are paid as incurred.
Sales of marketable securities in January are expected to realize $36,000 in cash. Martin Company has a line of credit at the local bank that enables it to borrow up to $75,000. The company wants to maintain a minimum monthly cash balance of $60,000.

Instructions

(a) Prepare a cash budget for January and February.

(b) Martin Company’s chief financial officer feels that it is important to have data for the entire quarter especially since their financial forecasts indicate some difficult economic periods in the coming year. March information has been budgeted as follows:

Collections from customers: $375,000
Payments for direct materials: $206,000
Direct labor: Wages paid in March $116,000
Manufacturing overhead: $64,500. This includes the monthly depreciation of $5,000.
Selling and administrative expenses: $51,600. This cost is exclusive of depreciation.
Marketable securities of $50,000 can be sold if needed for additional cash.

Prepare a cash budget for March assuming that the company does not sell the marketable securities.
Prepare a cash budget for March assuming that the company sells the marketable securities

QUESTIONS:

What is the maximum amount the company can borrow during March if the company does not sell the marketable securities? Does this provide the company with an adequate ending cash balance? Explain in detail.
Comment on the status of the company’s cash budget for March with or without selling the marketable securities. Detail any concerns and possible resolution to identified issues.

Definition Definition Estimate of an organization's cash flow for a future period. A cash budget forecasts future cash receipts and payments from various sources for a fiscal year. A cash budget can be created once a month or once a week to determine the organization's cash position and ensure its performance in relation to the budget. It aids in determining whether the company has enough cash and cash equivalents to meet its operational needs in the future.

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