Managerial Accounting and Control Dr. Mohamed Youssef Lecture 8 Example:

8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 8 Example:

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Managerial Accounting and control

Dr. Mohamed YoussefLecture 8

Example:

Begin Balance 5000Add Cash Received inflows 7000

Total cash available 12000Less: Cash Payment (4500)Net Cash available 7500Borrow 500Mine level of cash 8000

If we assume the previous cash Budget for Jan. then the begin Balance forFeb is 8000.

Notes:

Disbursements not cash so we will not include it in the cash flow Taxes for 2004 will pay in 2005 so it will be calculated in the cashbudget of 2005, but will be in the income statement of 2004.

Example:

P 24-4 ABadger Company prepares monthly cash budgets. Relevant data from

operating budgets for 1996 are

Chapter 7 1

January February

Sales $350,000 $400,000Direct materialspurchases

120,000 130,000

Direct labor 80,000 95,000Manufacturingoverhead

70,000 75,000

Selling andadministrativeexpenses

79,000 86,000


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All sales are on account. Collections are expected to be 50% in the monthof sales, 40% in the first month following the sales, and 10% in the second

month following the sales. Fifty percent of direct material purchases are paidin cash in the month of purchases and the balance due is paid in the monthfollowing the purchase. All other items above are paid in the month incurredexcept for selling and administrative expenses that includes $1000 ofdepreciation per month.Other data

1. Credit sales Nov. 1995, $260,000- Dec.1995,$300,0002. Purchases of direct materials Dec. 1995, $100,000

3. Other receipts Jan.: collection of Dec. 31,1995, notes receivable

$15,000. Feb: proceeds from sale of securities $6,0004. Other disbursements Feb withdrawal of $5,000 cash for personaluse of owner T.Kempen

The companys cash balance on Jan 1, 1996, is expected to be $55,000.The company wants to maintain a minimum cash balance of $50,000

Instructions:

Prepare schedules for1 expected collections from customers and 2expected payments from direct materials purchases. Prepare a cash budget for Jan. and Feb. in columnar form.

Solution

To calculate Expected collection of the customer we must calculate howmuch we calculate from sales

Sales

Month of thesales

First monthafter sales

Secondmonth aftersales

50% 40 % 10%

Expected collection from customers

19951996

Nov. Dec. January FebruaryNovember($ 260,000)

130,000 104,000 26,000 0

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December($300,000)

0 150,000 120,000 30,000

January($ 350,000)

0 0 175,000 140,000

February($400,000)

0 0 0 200,000

Totals 130,000 254,000 321,000 370,000

1995 1996Dec. January February

December($100,000)

50,000 50,000 0

January($ 120,000)

0 60,000 60,000

February($130,000)

0 0 65,000

Totals 50,000 110,000 125,000

Expected Payments for Direct Materials

Purchases

Month of thePurchase

First monthafterPurchase

50% 50 %

1995 1996Dec. January February

December($100,000)

50,000 50,000 0

January($ 120,000)

0 60,000 60,000

February($130,000) 0 0 65,000

Totals 50,000 110,000 125,000

Cash Budget

Total available

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We must calculate the first month and then the second month

1. January

January

Begin cash balance 55,000Add Receipts

Collections from customers 321,000Notes receivable 15,000Sales of securities 0Total receipts 336,000Total available cash 391,000

Ending cash balance

Less: DisbursementsDirect Materials 110,000Direct labor 80,000Manufacturing overhead 70,000Selling and administrative expenses 78,000Withdrawal by ownerTotal disbursements 338,000Excess (deficiency) of availableCash over

53,000

Financing

Borrowings 0

Repayments 0Ending cash balance 53,000

Begin cash balance for Feb. is 53,000

2. February

JanuaryBegin cash balance 53,000Add Receipts

Collections from customers 370,000

Notes receivable 0Sales of securities 6,000Total receipts 376,000Total available cash 429,000

Ending cash balance for February

Less: Disbursements

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Direct Materials 125,000Direct labor 95,000Manufacturing overhead 75,000Selling and administrative expenses 85,000Withdrawal by ownerTotal disbursements 385,000Excess (deficiency) of availableCash over

44,000

FinancingBorrowings 6,000Repayments 0Ending cash balance 50,000

Types of Disbursements

Amortization

Depilation Example

From Presentation slide 7-33

Begin cash Balance 15,000ReceiptTotal cash available 44.000- Payment 9,000Net cash available 35,000

Min level of cash 50,000Difference 15,000

Payment +Ending balance =needed = cash available +begin cash balance50,000+9,000 =59,00044,000+15,000=59,000Ending balance containso Borrowingo Net cash

Ending cash balance = Total cash available before financing total

disbursements +cash from financing

The cash from financing can be either positive (borrowing) or negative(repayment)

Example

Begin cash Balance 10000

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Receipt 40000Total cash available 50.000- Payment 35,000Net cash available 15,000Borrowing 7000

Min level of cash 22,000

Total cash available = Receipt+ Begin + borrowingTotal cash needed = payment + Receipt+ endingEnding may be consists of two parts borrowing and net

Differences between the budget income statement and the balance sheet

Budget income statementsSales

-----Profit

Balance sheet

ProfitEquity

Sales = sales units * USPSales units affected by product, market, level of qualityUSP affected by income

Chapter 7 6

Managerial Accounting and Control Dr. Mohamed Youssef Lecture 8 Example:

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