Question

Cullumber Company expects to have a cash balance of $138,000 on January 1, 2022. These are the relevant monthly budget data for the first two months of 2022. 1. Collections from customers: January $213,000, February $438,000. 2. Payments to suppliers: January $120,000, February $225,000. 3. Wages: January $90,000, February $120,000. Wages are paid in the month they are incurred. 4. Administrative expenses: January $63,000, February $72,000. These costs include depreciation of $3,000 per month. All other costs are paid as incurred. 5. Selling expenses: January $45,000, February $60,000. These costs are exclusive of depreciation. They are paid as incurred. 6. Sales of short-term investments in January are expected to realize $36,000 in cash. Cullumber Company has a line of credit at a local bank that enables it to borrow up to $75,000. The company wants to maintain a minimum monthly cash balance of $60,000.

Answer 1

Answer and Explanation:

The preparation of cash budget is shown below:-

                                 Cash Budget

                                          January           February

Beginning cash balance $1,38,000 $72,000

Add: Receipts:-  

Collections from customers$2,13,000       $4,38,000

Sale of marketable securities$36,000 $-  

Total receipts                          $2,49,000     $4,38,000

Total available cash               $3,87,000 $5,10,000

Less: Disbursements  

Direct materials                      $1,20,000       $2,25,000

Direct labor                              $90,000        $1,20,000  

Selling and administrative

expenses                               $1,05,000         $1,29,000

Total disbursements              $3,15,000        $4,74,000

Excess

(deficiency of available cash

over cash disbursements)     $72,000          $36,000

Financing:  

Add: Borrowings                    $ -                    $24,000

Ending cash balance           $72,000           $60,000