Preparing a Cash Budget
La Famiglia Pizzeria provided the following information for the month of October:
- Sales are budgeted to be $151,000. About 85% of sales is cash; the remainder is on account.
- La Famiglia expects that, on average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month.
- Food and supplies purchases, all on account, are expected to be $113,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.
- Most of the work is done by the owners, who typically withdraw $6,000 a month from the business as their salary. (Note: The $6,000 is a payment in total to the two owners, not per person.) Various part-time workers cost $7,300 per month. They are paid for their work weekly, so on average 90% of their wages are paid in the month incurred and the remaining 10% in the next month.
- Utilities average $5,950 per month. Rent on the building is $4,100 per month.
- Insurance is paid quarterly; the next payment of $1,400 is due in October.
- September sales were $181,500 and purchases of food and supplies in September equaled $130,000.
- The cash balance on October 1 is $2,147.
Preparing a Cash Budget
La Famiglia Pizzeria provided the following information for the month of October:
- Sales are budgeted to be $151,000. About 85% of sales is cash; the remainder is on account.
- La Famiglia expects that, on average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month.
- Food and supplies purchases, all on account, are expected to be $113,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.
- Most of the work is done by the owners, who typically withdraw $6,000 a month from the business as their salary. (Note: The $6,000 is a payment in total to the two owners, not per person.) Various part-time workers cost $7,300 per month. They are paid for their work weekly, so on average 90% of their wages are paid in the month incurred and the remaining 10% in the next month.
- Utilities average $5,950 per month. Rent on the building is $4,100 per month.
- Insurance is paid quarterly; the next payment of $1,400 is due in October.
- September sales were $181,500 and purchases of food and supplies in September equaled $130,000.
- The cash balance on October 1 is $2,147.
Related questions
Preparing a Cash Budget
La Famiglia Pizzeria provided the following information for themonth of October:
Sales are budgeted to be $156,000. About 85% of sales is cash;the remainder is on account.
La Famiglia expects that, on average, 70% of credit sales willbe paid in the month of sale, and 28% will be paid in the followingmonth.
Food and supplies purchases, all on account, are expected to be$116,000. La Famiglia pays 25% in the month of purchase and 75% inthe month following purchase.
Most of the work is done by the owners, who typically withdraw$6,000 a month from the business as their salary. (Note:The $6,000 is a payment in total to the two owners, not perperson.) Various part-time workers cost $7,300 per month. They arepaid for their work weekly, so on average 90% of their wages arepaid in the month incurred and the remaining 10% in the nextmonth.
Utilities average $5,950 per month. Rent on the building is$4,100 per month.
Insurance is paid quarterly; the next payment of $1,600 is duein October.
September sales were $181,500 and purchases of food and suppliesin September equaled $130,000.
The cash balance on October 1 is $2,147.
Required:
If required, round your answers to the nearest dollar.
1. Calculate the cash receipts expected inOctober.
$
2. Calculate the cash needed in October to payfor food purchases.
$
3. Prepare a cash budget for the month ofOctober.
| LaFamiglia Pizzeria | |
| Cashbudget | |
| Forthe month of October | |
| Beginning balance | $ |
| Cash receipts | |
| Cash available | $ |
| Less: | |
| Payments for food and suppliespurchases | $ |
| Owners' draw | |
| Workers' wages | |
| Utilities | |
| Rent | |
| Insurance | |
| Total disbursements | $ |
| Ending balance | $ |
Wallaby Kite Company, a small Melbournefirm that sells kites on the Web, wants a master budget for the 3months beginning January 1, 20X2. It desires an ending minimum cashbalance of $ 20,000 each month. Sales are forecasted at an averagewholesale selling price of $ 8 per kite. Merchandise costs average$ 4 per kite. All sales are on credit, payable within 30 days, butexperience has shown that 60% of current sales are collected in thecurrent month, 30% in the next month, and 10% in the monththereafter. Bad debts are negligible. In January, Wallaby Kite isbeginning just- in- time (JIT) deliveries from suppliers, whichmeans that purchases will equal expected sales. On January 1,purchases will cease until inventory decreases to $ 24,000, afterwhich time purchases will equal sales. Purchases during any givenmonth are paid in full during the following month. Monthlyoperating expenses are as follows:
Wages and salaries | $60,000 |
Insurance expired | 500 |
Depreciation | 1000 |
Miscellaneous | 10,000 |
Rent | $1000/month + 10% of quarterly sales over$40,000 |
Cash dividends of $ 6,000 areto be paid quarterly, beginning January 15, and are declared on thefifteenth of the previous month. All operating expenses are paid asincurred, except insurance, depreciation, and rent. Rent of $ 1,000is paid at the beginning of each month, and the additional 10% ofsales is settled quarterly on the tenth of the month following theend of the quarter. The next rent settlement date is January 10.The company plans to buy some new fixtures for $ 12,000 cash inMarch. Money can be borrowed and repaid in multiples of $ 2,000.Management wants to minimize borrowing and repay rapidly. Simpleinterest of 10% per annum is computed monthly but paid when theprincipal is repaid. Assume that borrowing occurs at the beginning,and repayments at the end, of the months in question. Computeinterest to the nearest dollar.
October | $152,000 |
November | 100,000 |
December | 100,000 |
January | 248,000 |
February | 280,000 |
March | 152,000 |
April | 180,000 |
Liabilities as ofDecember 31, 2007 | |||
Accountspayable | $ 142,200 | ||
Dividendspayable | $ 6,000 | ||
Rent payable | $ 31,200 | ||
Owners' Equity | $ 102,800 | ||
$282,200 | |||
Assets as of December31, 2007 | |||
Cash | $ 20,000 | ||
Accountsreceivable | $ 50,000 | ||
Inventory | $ 156,200 | ||
Unexpiredinsurance | $ 6,000 | ||
Fixed assets,net | $ 50,000 | ||
$ 282,200 | |||
A) Prepare a masterbudget including a budgeted income statement, balance sheet, cashbudget, and supporting schedules for the months Januaryââ¬â March20X2.
B) Explain why there is aneed for a bank loan and what operating sources provide the cashfor the repayment of the bank loan.
