BTB110
Solution to Budgeting Problem #3
When I tried to solve this problem in class, the numbers did not make sense (based on the control
figure for October). I have determined that the typist was in error.
The problem currently reads as:
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60%
are expected to be collected in full in the month of sale, and the remainder, the following
month.
The problem should have read as follows:
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60%
are expected to be collected in full in the month following sale, and the remainder, the following
month after that.
Using this modification, the problem can be solved as follows:
Sales
Sales Split
Cash Sales (10% each month)
Sales on Account
Total Allocation
Cash Collection Schedule
Cash Sales
Collections on Account
Collections from June
Collections from July (60% in Aug, 40% in Sept)
August
September
October
$590,000
$650,000
$750,000
$59,000
$531,000
$590,000
$65,000
$585,000
$650,000
$75,000
$675,000
$750,000
$59,000
$65,000
$75,000
152,000
265,200
Collections from August (60% in Sept, 40% in Oct)
Collections from September (60% Oct, 40%Nov)
Dividend Receipt
Total Collections
1,500
$447,700
176,800
318,600
$560,400
212,400
351,000
$638,400
August
Expenses
Manufacturing Costs
Less: Depreciation, Insurance, Taxes
Manufacturing costs for which cash is involved
during these 3 months
Payment Schedule
Manufacturing Costs (80% in month incurred)
(20% in month following)
September
October
$300,000
30,000
$340,000
30,000
$390,000
30,000
$270,000
$310,000
$360,000
$216,000
60,000*
$248,000
54,000
$288,000
62,000
100,000
2,500
200,000
120,000
15,000
*$60,000 is the balance in payables on August 1
Note Payable in October
Interest payable on Note ( 90 day note @10%)
Selling & Admin Expenses
Capital Expenditure
Dividend
Income Tax Payment
Total Budgeted Payments by Month
150,000
170,000
$426,000
$42,000
$514,000
$787,500
Quarterly Cash Budget
Cash Balance, August 1
Add: Budgeted Receipts
Total Cash Available
Deduct: Budgeted Cash Payments
Budgeted Cash Balance
$55,000
$447,700
$532,500
$426,000
$106,700
$106,700
$560,400
$667,100
$514,000
$153,100
$153,100
$638,400
$791,500
$787,500
$ 4,000
Given that the company wants to have a $45,000 cash balance available at the end of each
month, they will have a $41,000 shortfall at the end of October, and will need to borrow to
bring them up to the required level.