Question

The controller of Sonoma Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: May June July Sales $116,000 $143,000 $191,000 Manufacturing costs 49,000 61,000 69,000 Selling and administrative expenses 34,000 39,000 42,000 Capital expenditures _ _ 46,000 The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $7,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in September, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of May 1 include cash of $44,000, marketable securities of $63,000, and accounts receivable of $129,900 ($102,000 from April sales and $27,900 from March sales). Sales on account for March and April were $93,000 and $102,000, respectively. Current liabilities as of May 1 include $14,500 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $17,000 will be made in June. Sonoma’s regular quarterly dividend of $7,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $34,000. Required: 1. Prepare a monthly cash budget and supporting schedules for May, June, and July. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign.

Answer 1

1. cash budget July Мay June Estimated cash receipts from: Cash sales 11,600.00 14,300.00 19,100.00 99,300.00 103,680.00 121,410.00 Collection of accounts receivable Total cash receipts Estimated cash pa yments for: Manufacturing costs Selling and admin istr at ive expenses Capitalexpenditures Other purposes: 110,900.00 117,980.00 140,510.00 48,100.00 51,600.00 60,400.00 34,000.00 39,000.00 42,000.00 46,000.00 Incometax 17,000.00 Dividends 7,000.00 Total cash payments 82,100.00 107,600.00 155,40o.00 Cash increase or (decrease) 28,800.00 10,380.00 14,890.00 Cash balance at beginning of month 44,000.00 72,800.00 83,180.00 Cash balance at end of month 72,800.00 83,180.00 68,290.00 Minimum cash ba lance 34,000.00 34,000.00 34,000.00 Excess or (deficiency) 49,180.00 38,800.00 34,290.00

working: July May June total sales 116000 143000 191000 cash sales (10% of total sales) 11600 14300 19100 credit sales (90% of total sales) 104400 128700 171900 collection from credit sa les July total Мay June March sales 30% of 27900 93000 27900 April sales 70% of 71400 102000 71400 30600 30% of 102000 30600 May sa les 70% of 104400 73080 73080 30% of 104400 31320 31320 June sa les 70% of 128700 90090 90090 121410 324390 total 99300 103680 May July 69000 179000 total June 61000 Manufacturing costs 49000 Less dep, insurance, property tax balance 7000 7000 7000 21000 62000 158000 42000 54000 payment for manufactur ing cost April payment May payment May July total June 14500 14500 80% of 42000 33600 33600 20% of 8400 42000 8400 June payment 80% of 20% of 43200 54000 43200 54000 10800 10800 July payment 80% of 62000 49600 49600 total 60400 160100 48100 51600