Question

Danner Company expects to have a cash balance of $46,350 on January 1, 2020. Relevant monthly budget data for the first 2 months of 2020 are as follows.Collections from customers: January $87,550, February $154,500.Payments for direct materials: January $51,500, February $77,250.Direct labor: January $30,900, February $46,350. Wages are paid in the month they are incurred.Manufacturing overhead: January $21,630, February $25,750. These costs include depreciation of $1,545 per month. All other overhead costs are paid as incurred.Selling and administrative expenses: January $15,450, February $20,600. These costs are exclusive of depreciation. They are paid as incurred.Sales of marketable securities in January are expected to realize $12,360 in cash. Danner Company has a line of credit at a local bank that enables it to borrow up to $25,750. The company wants to maintain a minimum monthly cash balance of $20,600.Prepare a cash budget for January and February.

Answer 1

Cash Budget

January February

$46,350 $28,325 Beginning cash balance

Add: Receipts Add: Receipts

$87,550 $154,500 Collections from customers

$12,360 $0 Sale of Securities

$99,910 $154,500 Total receipts

$146,260 $182,825 Total available cash

Less: Disbursements Less: Disbursements

$51,500 $77,250 Direct materials

$30,900 $46,350 Direct labor

$21,630 $25,750 Manufacturing overhead

-$1,545 $0 add back: depreciation $1,535 non cash transaction

$15,450 $20,600 Selling and administrative expense

$117,935 $169,950 Total disbursements

$28,325 $12,875 Excess of available cash over disbursements

Financing Financing

$0 $7,725 Borrowings

$28,325 $20,600 Ending cash balance

Step-by-step explanation:

As Total receipts we report the total collections plus the sale of securities reported in January, here we reach to first line of Total available cash.

The we deduct the total disbursements that are made up of Direct Materials, Direct Labor, Manufacturing overhead and selling and administrative expenses, in this group of expenses we have to deduct the depreciation informed in manufacturing overhead because this item does not it's part of cash budget.

Finally we arrive at the Available cash over disbursements , in January there is no problem because we exceed the minimum that the company wants to keep as a cash balance, but in February it does not reach the minimum, so it's necessary to take the credit granted by the bank to keep the minimum amount estipulated, we borrow $7,725.