The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: Line It
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
| Line Item Description | September | October | November |
|---|---|---|---|
| Sales | $250,000 | $300,000 | $315,000 |
| 150,000 | 180,000 | 185,000 | |
| Selling and administrative expenses | 42,000 | 48,000 | 51,000 |
| Capital expenditures | 200,000 |
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale).
Current assets as of September 1 include cash of $40,000, marketable securities of $75,000, and accounts receivable of $300,000 ($60,000 from July sales and $240,000 from August sales). Sales on account for July and August were $200,000 and $240,000, respectively. Current liabilities as of September 1 include $40,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $55,000 will be made in October. Bridgeport’s regular quarterly dividend of $25,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of $50,000.
Required:
Question Content Area
1. Prepare a monthly cash budget and supporting schedules for September, October, and November.
| Line Item Description | September | October | November |
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| Estimated cash receipts from: | |||
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| Total cash receipts | |||
| Less estimated cash payments for: | |||
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| Other purposes: | |||
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| Total cash payments | |||
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| Cash balance at end of month | |||
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| Excess or (deficiency) |
Question Content Area
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
The budget indicates that the minimum cash balance be_________ maintained in November. This situation can be corrected by__________ and/or of the ________marketable securities, if they are held for such purposes. At the end of September and October, the cash balance will ________ the minimum desired balance.
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