Question

Danner Company expects to have a cash balance of $51,300 on January 1, 2020. Relevant monthly budget data for the first 2 months of 2020 are as follows. Collections from customers: January $96,900, February $171,000. Payments for direct materials: January $57,000, February $85,500. Direct labor: January $34,200, February $51,300. Wages are paid in the month they are incurred. Manufacturing overhead: January $23,940, February $28,500. These costs include depreciation of $1,710 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January $17,100, February $22,800. These costs are exclusive of depreciation. They are paid as incurred. Sales of marketable securities in January are expected to realize $13,680 in cash. Danner Company has a line of credit at a local bank that enables it to borrow up to $28,500. The company wants to maintain a minimum monthly cash balance of $22,800. Prepare a cash budget for January and February.

Answer 1

Danner Company

Danner Company

Cash Budget

January February

Beginning Balance $51,300 $31,350

Collections from customers: 96,900 171,000

Sale of marketable securities 13,680

Total cash receipts $161,880 $202,350

Payments:

Direct materials: $57,000 $85,500

Direct labor: 34,200 51,300

Manufacturing overhead: 22,230 26,790

Selling & Administrative: 17,100 22,800

Total payments $130,530 $186,390

Cash Balance $31,350 $15,960

Minimum cash balance 22,800 22,800

Excess cash (deficit) $8,550 ($6,840)

Step-by-step explanation:

a) Data and Calculations:

Expected Cash balance on January 1, 2020 = $51,300

Collections from customers:

January $96,900

February $171,000

Payments for direct materials:

January $57,000

February $85,500

Direct labor:

January $34,200

February $51,300

Manufacturing overhead:

January $23,940 - depreciation of $1,710 Net $22,230

February $28,500 - depreciation of $1,710 Net $26,790

Selling and administrative expenses:

January $17,100

February $22,800

Sales of Marketable securities in January = $13,680

Line of credit = $28,500

Expected monthly minimum cash balance = $22,800