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Answer:
Deficiency of cash for the month of October = $7,000
Explanation:
Opening cash = $7,000
Add: Expected cash collections = $350,000
Total cash in hand expected = $357,000
Less: Cash disbursements
Direct Material = $62,000
Direct Labor = $45,000
MOH Disbursements = $43,000
Operating Expense = $85,000
Capital Expense = $125,000
Total cash disbursements = $360,000
Net balance expected = $357,000 - $360,000 = $3,000 deficit.
Also provided month end balance should be $5,000
Therefore total deficit = $3,000 + $5,000 = $8,000
Now provided $1,000 cash can be borrowed in that case net deficit = $8,000 - $1,000 = $7,000
The cash deficiency for October is $3,000 for Bookworm Publishers.
Further Explanation:
Excess Cash:
When the cash inflow is higher than the cash outflow, then the condition is considered as excess cash. In this case, business is generating a higher amount of cash than it is spending. It is a favorable condition for the business.
Cash Deficiency:
When the cash outflow is higher than the cash inflow, then the condition is known as cash deficiency. In this case, business in generating less amount of cash than it is spending. It is an unfavorable condition for the business.
Calculate the excess or deficiency of cash for October:
The total cash outflow of Bookworm Publisher is $360,000 as per working note 1, and the total cash inflow is $357,000. The outflow is higher than the inflow, so there will be cash deficiency.
Cash Deficiency = Total cash outflows - Total cash inflows
= $360,000 - $357,000
= $3,000
Thus, the net cash deficiency is $3,000.
Working note 1:
Calculate the total cash outflow:
Total cash outflows = Direct materials + Direct labor + MOH cash disbursements + Operating expenses + Capital expenditure
= $62,000 + $45,000 + 43,000 + 85,000 + $125,000
= $360,000
Therefore, the total cash outflow is $360,000.
Working note 2:
Calculate the total cash inflow:
Total cash inflow = Opening cash balance + Expected cash collections
= $7,000 + $350,000
= $357,000
Therefore, the total cash inflow is $357,000.
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Answer details:
Grade: Middle School
Subject: Finance
Chapter: Cash Budgeting
Keywords: Bookworm publisher, publishes, books, month, October, Data Cash, Expected Cash Collections, Expected Cash Collections, Direct Labor Cash Disbursements, MOH Cash Disbursements, Operating Expenses Cash Disbursements, capital Expenditures Cash Disbursements, ending cash balance, borrow from a line of credit, excess or deficiency of cash.
