At the beginning of the 2014 school year, Jen Lassiter decided to prepare a cash budget for the months of September, October, November, and December

At the beginning of the 2014 school year, Jen Lassiter 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) . . . . . . . . . . . . . . . . . . . . . $5,970
Purchase season football tickets in September . . . . . . . . . . . . . . . . . . . . . . . 150
Additional entertainment for each month . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Pay fall semester tuition in September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500
Pay rent at the beginning of each month . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300
Pay for food each month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Pay apartment deposit on September 2 (to be returned December 15) . . . . . 500
Part-time job earnings each month (net of taxes) . . . . . . . . . . . . . . . . . . . . . 1,450


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 Jen Lassiter?


Answer:





















a. JEN LASSITER
Cash Budget
For the Four Months Ending December 31, 2014
September October November December
Estimated cash receipts from:
Part-time job $ 1,450 $1,450 $1,450 $1,450
Deposit 500
Total cash receipts $ 1,450 $1,450 $1,450 $1,950
Estimated cash payments for:
Season football tickets $ 150
Additional entertainment 300 $ 300 $ 300 $ 300
Tuition 4,500
Rent 300 300 300 300
Food 180 180 180 180
Deposit 500
Total cash payments $ 5,930 $ 780 $ 780 $ 780
Cash increase (decrease) $(4,480) $ 670 $ 670 $1,170
Cash balance at beginning of
month 5,970 1,490 2,160 2,830
Cash balance at end of month $ 1,490 $2,160 $2,830 $4,000





b. The four-month budgets do not change with any identified activity level; thus, they are static budgets.

c. While Lassiter’s budget might first appear satisfactory, Lassiter must earn enough cash in order to pay for the spring semester tuition. Her present budget shows that she will be $500 short of the tuition amount ($4,500 – $4,000) by the time she needs to pay her spring tuition. Thus, Lassiter will likely need to adjust the plan before the fall term even begins. Some possibilities would be to rent a lower cost apartment or to get a roommate. Other considerations include increasing her part-time job hours and reducing her monthly entertainment and food allowance, or making up the income difference with additional hours during Christmas break. Lassiter might also see about scholarship opportunities to reduce the tuition payment. The budget gives Lassiter time to adjust her plans to future events. In this case, Lassiter can see that her present plan will not provide sufficient cash, thus giving her four months to adjust. If Lassiter did not budget but went ahead with the original plan, she would be $500 short at the end of December, with no time left to adjust.