Question

Danner Company expects to have a cash balance of $52,965 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows. Collections from customers: January $100,045, February $176,550. Payments for direct materials: January $58,850, February $88,275. Direct labor: January $35,310, February $52,965. Wages are paid in the month they are incurred. Manufacturing overhead: January $24,717, February $29,425. These costs include depreciation of $1,765 per month. All other overhead costs are paid as incurred. Selling and administrative expenses: January $17,655, February $23,540. These costs are exclusive of depreciation. They are paid as incurred. Sales of marketable securities in January are expected to realize $14,124 in cash. Danner Company has a line of credit at a local bank that enables it to borrow up to $29,425. The company wants to maintain a minimum monthly cash balance of $23,540.

Prepare a cash budget for January and February.

Answer 1

Danner Company

Cash Budget for January and February

January February

Beginning balance $52,965 $32,367

Collections from customers 100,045 176,550

Sales of marketable securities 14,124

Cash available $167,134 $208,917

Payments:

Direct materials $58,850 $88,275

Direct labor 35,310 52,965

Manufacturing overhead 22,952 27,660

Selling & administrative expenses 17,655 23,540

Total payments $134,767 $192,440

Cash balance $32,367 $16,477

Required minimum balance 23,540 23,540

Excess (Needed) Financing $8,827 ($7,063)

Step-by-step explanation:

a) Data and Calculations:

Expected January 1, 2017 Cash Balance = $52,965

January February

Collections from customers $100,045 $176,550

Sales of marketable securities 14,124

Payments:

Direct materials $58,850 $88,275

Direct labor 35,310 52,965

Manufacturing overhead 22,952 27,660

Selling & administrative expenses 17,655 23,540

Line of credit limit = $29,425

Required minimum cash balance = $23,540