Question

Danner Company expects to have a cash balance of $58,050 on January 1, 2017. Relevant monthly budget data for the first 2 months of 2017 are as follows.Collections from customers: January $109,650, February $193,500.Payments for direct materials: January $64,500, February $96,750.Direct labor: January $38,700, February $58,050. Wages are paid in the month they are incurred.Manufacturing overhead: January $27,090, February $32,250. These costs include depreciation of $1,935 per month. All other overhead costs are paid as incurred.Selling and administrative expenses: January $19,350, February $25,800. These costs are exclusive of depreciation. They are paid as incurred.Sales of marketable securities in January are expected to realize $15,480 in cash. Danner Company has a line of credit at a local bank that enables it to borrow up to $32,250. The company wants to maintain a minimum monthly cash balance of $25,800.Prepare a cash budget for January and February.

Answer 1

January February

Beginning Cash Balance 58,050 35,475

Add: Receipts

Collections from Customers 109,650 193,500

Sale of Marketable Securities 15,480 0

Total Receipts 125,130 193,500

Total Available Cash 183,180 228,975

Less: Disbursements

Direct Materials 64,500 96,750

Direct Labour 38,700 58,050

Manufacturing Overhead 25,155 30,315

Selling and Administrative 19,350 25,800

Total Disbursements 147,705 210,915

Cash Balance 35,475 18,060

Financing

Add: Borrowings 0 7,740

Less: Repayments 0 0

Ending Cash Balance 35,475 25,800

The company wants to maintain a minimum monthly cash balance of $25,800 so in February they will have to borrow;

= 25,800 - 18,060

= $7,740