Question

At the beginning of the school year, Priscilla Wescott 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. Priscilla can see that her present plan will not provide sufficient cash. If Priscilla 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) Priscilla Wescott's

Cash budget

                                                                  Months

                                        Sept.            Oct.             Nov.           Dec.

beginning balance          8,220         3,220          3,330          3,340

football tickets                -110

other entertainment       -290            -290            -290            -290

semester tuition             -4,400

rent                                  -400            -400            -400            -400

food                                 -220            -220            -220            -220

apartment deposit          -600                                                     600

part time jobs earnings   1,020          1,020           1,020           1,020

ending balance                3,220         3,330           3,340          4,150

b) This is a static budget because it is being prepared in advance. A flexible budget adjusts a static budget to the real cash outflows and inflows.

c) The spring semester tuition costs $4,400 and she will only have $4,150, that means she will be $250 short.