Chapter 20 — Budgeting (PROBLEM SOLVING)

The treasurer of Unisyms Company has accumulated the following budget information for the first two
months of the coming year:

March April
Sales. $450,000 $520,000
Manufacturing costs  290,000  350,000
Selling and administrative
expenses   41,400   46,400
Capital additions  250,000 ---

The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80%
are expected to be collected in full in the month of the sale and the remainder in the month
following the sale. One-fourth of the manufacturing costs are expected to be paid in the month in
which they are incurred and the other three-fourths in the following month. Depreciation,
insurance, and property taxes represent $6,400 of the probable monthly selling and administrative
expenses. Insurance is paid in February and a $40,000 installment on income taxes is expected to
be paid in April. Of the remainder of the selling and administrative expenses, one-half are
expected to be paid in the month in which they are incurred and the balance in the following
month. Capital additions of $250,000 are expected to be paid in March.

Current assets as of March 1 are composed of cash of $45,000 and accounts receivable of
$51,000. Current liabilities as of March 1 are composed of accounts payable of $121,500
($102,000 for materials purchases and $19,500 for operating expenses). Management desires to
maintain a minimum cash balance of $20,000.

Prepare a monthly cash budget for March and April.

ANS:

Unisyms Company
Cash Budget
For the Two Months Ending April 30, 20--
March    April    
Estimated cash receipts from:
Cash sales* $157,500  $182,000
Collections of accounts receivable**  285,000   328,900
Total cash receipts $442,500  $510,900
Estimated cash payments for:
Manufacturing costs $174,500  $305,000
Selling and administrative
expenses 37,000  37,500
Capital additions 250,000  ---
Income taxes       ---   40,000
Total cash payments $461,500  $382,500
Cash increase (decrease) $(19,000) $128,400
Cash balance at beginning of month   45,000    26,000
Cash balance at end of month $ 26,000  $154,400
Minimum cash balance   20,000  20,000
Excess (deficiency) $ 6,000  $134,400
========  ========

*$450,000  .35 = $157,500; $520,000  .35 = $182,000

**($450,000  .65  .80) + $51,000 = $285,000
($520,000  .65  .80) + ($450,000  .65  .20) = $328,900

DIF: 5 OBJ: 05