Question

At the beginning of the school year, Malloy decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget:
Cash balance, September 1 (from a summer job) $8,220
Purchase season football tickets in September 110
Additional entertainment for each month 290
Pay fall semester tuition in September 4,400
Pay rent at the beginning of each month 400
Pay for food each month 220
Pay apartment deposit on September 2 (to be returned December 15) 600
Part-time job earnings each month (net of taxes) 1,020
a. Prepare a cash budget for September, October, November, and December. Enter all amounts as positive values except an overall cash decrease which should be indicated with a minus sign.
b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?
c. Malloy can see that her present plan will not provide sufficient cash. If Malloy did not budget but went ahead with the original plan, she would be $ short at the end of December, with no time left to adjust.

Answer 1

Answer:

a) cash budget

                         September October November December

Cash at beginning      $ 8,220    $3,220   $3,330    $3,440

Cash inflow :    

Monthly Job earnings $1,020 $1,020 $1,020       $1,020

Apartment deposit    $600

Total Inflow             $1,020 $1,020 $1,020       $1,620

Football tickets        $110    

Monthly entertainment $290 $290 $290       $290

Fall tuition               $4,400    

rent                                $400 $400 $400      $400

Food                        $220 $220 $220      $220

Apartment deposit       $600    

Sprint tuition        $4,400

Total outflow             $6020 $910 $910    $5310

Surpus (deficit)    -$5000 $110          $110   - $3,690

Ending balance           $3,320    $3,330        $3,440   -$250  

( see attached)

   

b) static budget

c) $250 shortage

Explanation:

static budget do not change, it remains fixed no mater the volume of activity. Sales commission are examples of flexible budget items, usually flexible budget represents items as a percentage or variable rate. Flexible budget change based on the activity level of the firm. Fixed items such as rent, salaries remain static and are static budget items.

The money needed to come in more into inflows is $250 to enable her meet up with the tuition.

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