Question

Bookworm Publishers publishes books and they have gathered the following data for the month of​ October: Data Cash on​ 8/1 ​$7,000 Expected Cash Collections ​$350,000 Direct Materials Cash Disbursements ​$62,000 Direct Labor Cash Disbursements ​$45,000 MOH Cash Disbursements ​$43,000 Operating Expenses Cash Disbursements ​$85,000 Capital Expenditures Cash Disbursements ​$125,000 Bookworm Publishers requires an ending cash balance of at least​ $5,000 and can borrow from a line of credit in​ $1,000 increments. What is the excess or deficiency of cash for​ October?

Answer 1

The cash deficiency for October is $3,000 for Bookworm Publishers.

Further Explanation:

Excess Cash:  

When the cash inflow is higher than the cash outflow, then the condition is considered as excess cash. In this case, business is generating a higher amount of cash than it is spending. It is a favorable condition for the business.

Cash Deficiency:

When the cash outflow is higher than the cash inflow,  then the condition is known as cash deficiency. In this case, business in generating less amount of cash than it is spending. It is an unfavorable condition for the business.

Calculate the excess or deficiency of cash for October:

The total cash outflow of Bookworm Publisher is $360,000 as per working note 1, and the total cash inflow is $357,000. The outflow is higher than the inflow, so there will be cash deficiency.

Cash Deficiency = Total cash outflows - Total cash inflows

                           = $360,000 - $357,000

                           = $3,000

Thus, the net cash deficiency is $3,000.

Working note 1:

Calculate the total cash outflow:

Total cash outflows = Direct materials + Direct labor + MOH cash            disbursements + Operating expenses + Capital expenditure

                                 = $62,000 + $45,000 + 43,000 + 85,000 + $125,000

                                 = $360,000

Therefore, the total cash outflow is $360,000.

Working note 2:

Calculate the total cash inflow:

Total cash inflow = Opening cash balance + Expected cash collections

                            = $7,000 + $350,000

                            = $357,000

Therefore, the total cash inflow is $357,000.

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Answer details:

Grade: Middle School

Subject: Finance

Chapter: Cash Budgeting

Keywords: Bookworm publisher, publishes, books, month, October,  Data Cash, Expected Cash Collections, Expected Cash Collections, Direct Labor Cash Disbursements, MOH Cash Disbursements, Operating Expenses Cash Disbursements, capital Expenditures Cash Disbursements,  ending cash balance, borrow from a line of credit, excess or deficiency of cash.

Answer 2

Answer:

Deficiency of cash for the month of October = $7,000

Explanation:

Opening cash = $7,000

Add: Expected cash collections = $350,000

Total cash in hand expected = $357,000

Less: Cash disbursements

Direct Material = $62,000

Direct Labor = $45,000

MOH Disbursements = $43,000

Operating Expense = $85,000

Capital Expense = $125,000

Total cash disbursements = $360,000

Net balance expected = $357,000 - $360,000 = $3,000 deficit.

Also provided month end balance should be $5,000

Therefore total deficit = $3,000 + $5,000 = $8,000

Now provided $1,000 cash can be borrowed in that case net deficit = $8,000 - $1,000 = $7,000