Question

At the beginning of the school year, Craig Kovar decided to prepare a cash budget for the months of September, October, November, and December. The budget must plan for enough cash on December 31 to pay the spring semester tuition, which is the same as the fall tuition. The following information relates to the budget: Cash balance, September 1 (from a summer job) $9,250 Purchase season football tickets in September 160 Additional entertainment for each month 250 Pay fall semester tuition in September 4,800 Pay rent at the beginning of each month 600 Pay for food each month 550 Pay apartment deposit on September 2 (to be returned December 15) 600 Part-time job earnings each month (net of taxes) 950Required:a. Prepare a cash budget for September, October, November, and December. b. Are the four monthly budgets that are presented prepared as static budgets or flexible budgets?c. What are the budget implications for Craig Kovar?

Answer 1

Answer:

a) Craig Novar's

Cash budget

                                                                  Months

                                        Sept.            Oct.             Nov.           Dec.

beginning balance          9,250         2,640          2,190           1,740

football tickets                -160

other entertainment       -250            -250            -250            -250

semester tuition             -4,800

rent                                  -600            -600            -600            -600

food                                 -550            -550            -550            -550

apartment deposit          -600                                                     600

part time jobs earnings   950             950             950             950

ending balance                2,640         2,190           1,740            1,890

b) This is a static budget because it is being prepared in advance. A flexible budget adjusts a static budget to the real cash outflows and inflows.

c) Since Craig is spending more money than what he earns, his cash balance is decreasing month by month. This tendency changes in December because Craig gets his apartment's deposit back, but he still will not have enough money to pay for Spring tuition.