Question: You have the following information about a restaurant:
Collections on credit revenue average 90% in the month following the sales and the remaining 10% in the month following. Cost of sales (purchases) averages 38% of total sales revenue. Forty percent of cost of sales is on a cash basis, and 60% is paid in the month following purchase. Payroll costs (which are paid on a cash basis) are forecast to be $13,100 for October; $12,700 for November; and $12,200 for December. Other budgeted expenses according to the forecast income statements follow:
Note that the rent, utilities, other operating costs, and interest are paid in cash each month as the expense is incurred. The insurance expense is paid in January each year in advance for the whole year ($3,600). The restaurant financed its equipment and makes monthly payments on the balance owing (principal amount) of $1,000. In December, the restaurant plans to sell off some old equipment and estimates it will receive $1,500 from the sale. At the same time, it must spend $5,400 on new equipment. If there is sufficient cash on hand, the owner plans to pay a bonus to the staff. This bonus will amount to $3,600 and will be paid in December. Prepare the restaurant's cash budget for each of the three months: October, November, and December. The beginning cash balance October 1 is $2,410.