Question

Preparing a Cash Budget

La Famiglia Pizzeria provided the following information for the month of October:

1. Sales are budgeted to be $157,000. About 85% of sales is cash; the remainder is on account.
2. 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.
3. Food and supplies purchases, all on account, are expected to be $116,000. La Famiglia pays 25% in the month of purchase and 75% in the month following purchase.
4. 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.
5. Utilities average $5,950 per month. Rent on the building is $4,100 per month. Insurance is paid quarterly; the next payment of $1,200 is due in October.
5. September sales were $181,500 and purchases of food and supplies in September equaled $130,000.
6. The cash balance on October 1 is $2,147.

Required:
a. Calculate the cash receipts expected in October. (Hint: Remember to include both cash sales and payments from credit sales.)
b. Calculate the cash needed in October to pay for food purchases.
c. Prepare a cash budget for the month of October.

Answer 1

Answer:

A. $157,558

B.$126,500

C.$150,690

Explanation:

A.

Cash receipts in October from:

Cash sales ($157,000 × 85% cash) $ 133,450

Payments on September credit sales 7,623

Payments on October credit sales 16,485

Total cash expected $157,558

$181,500 × 0.15 × 0.28 = $7,623

$157,000 × 0.15 × 0.70 = $16,485

(b) Payments for food purchases from:

September ($130,000 × 0.75) $97,500

October ($116,000 × 0.25) 29,000

Total cash needed for June $126,500

(c)

Beginning balance $ 2,147

Cash receipts 157,558

Cash available 159,705

Less: Payments for food purchases 126,500

Dividends paid to shareholders 6,000 Workers’ wagesre: September ($7,300 × 10%) 730

Workers’ wages re: October ($7,300 × 90%)6,570

Utilities 5,590

Rent 4,100

Insurance 1,200

Total disbursements 150,690

Ending balance $ 9,015

Answer 2

Answer:

See the explanation below and the attached for c part.

Explanation:

a. Calculate the cash receipts expected in October. (Hint: Remember to include both cash sales and payments from credit sales.)

Cash sales in October = $157,000 × 85% = $133,450

Cash receipt from credit sales in October = ($157,000 - $133,450.00) × 70% = $16,485

Cash receipt from credit sales in September = ($181,500 × 15%) × 28% = $7,623

Total expected cash receipts in October = $133,450 + $16,485 + $7,623 = $157,558

Therefore, the cash receipts expected in October is $157,558.

average, 70% of credit sales will be paid in the month of sale, and 28% will be paid in the following month.

b.Calculate the cash needed in October to pay for food purchases.

Cash needed for Food purchases in October = $116,000 × 25% = $29,000

Cash needed for Food purchases in September = $130,000 × 75% = $97,500

Total cash needed in October to pay for food purchases = $29,000 + $97,500 = $126,500

Therefore, cash needed in October to pay for food purchases is $126,500.

c. Prepare a cash budget for the month of October.

Find attached the budget.

Cash balance on October 31 is $8,655.