Question

1.Danner Company expects to have a cash balance of $45,000 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows. Collections from customers: January $85,000, February $150,000. Payments for direct materials: January $50,000, February $75,000. Direct labor: January $30,000, February $45,000. Wages are paid in the month they are incurred. Manufacturing overhead: January $21,000, February $25,000. These costs include depreciation of $1,500 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January $15,000, February $20,000. These costs are exclusive of depreciation. They are paid as incurred. Sales of marketable securities in January are expected to realize $12,000 in cash. Danner Company has a line of credit at a local bank that enables it to borrow up to $25,000. The company wants to maintain a minimum monthly cash balance of $20,000. Instructions Prepare a cash budget for January and February

Answer 1

Answer:

$\left[\begin{array}{ccc}&January&February\\ beginning&45000&27500\\ receipts&97000&150000\\ disbursement&-114500&-163500\\ interest&0&0\\ subtotal&27500&14000\\ minimun&20000&20000\\ Financing&&\\ beginning&0&0\\ payment/loan&0&6000\\ ending&0&6000\\&&\\ ending cash&27500&20000\\\end{array}\right]$

Explanation:

On January we collect the 85,000 from revenues and the 12,00 form marketable securities.

Then, we add up each disbursement:

Materials 50000

Labor       30000

Overhead (net of depreciation) 19,500

Selling and administrative 15000

Total 114,500

Then we solve for the cash balance and get the blaance as it is higher than 20,000 we do not need financing

Then, this value is the beginning cash for February. As the ending balance is 14,000 we will take 6,000 financing to reach the bare minimum of 20,000