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	$134,000		$159,000		$216,000
Manufacturing costs	56,000		68,000		78,000
Selling and administrative expenses	39,000		43,000		48,000
Capital expenditures	_		_		52,000

The company expects to sell about 12% 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 $10,000 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, 85% 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 $51,000, marketable securities of $72,000, and accounts receivable of $149,100 ($117,000 from April sales and $32,100 from March sales). Sales on account for March and April were $107,000 and $117,000, respectively. Current liabilities as of May 1 include $10,500 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 $19,000 will be made in June. Sonoma’s regular quarterly dividend of $10,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $40,000.

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.

Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
	May	June	July
Estimated cash receipts from:
Cash sales	$	$	$
Collection of accounts receivable
Total cash receipts	$	$	$
Estimated cash payments for:
Manufacturing costs	$	$	$
Selling and administrative expenses
Capital expenditures
Other purposes:
Income tax
Dividends
Total cash payments	$	$	$
Cash increase or (decrease)	$	$	$
Cash balance at beginning of month
Cash balance at end of month	$	$	$
Minimum cash balance
Excess (deficiency)	$	$	$

Answer 1

Monthly cash budget and supporting schedules for May, June, and July is as shown below:

Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
	May	June	July
Estimated cash receipts from:
Cash sales	16,080	19,080	25,920
Collection of accounts receivable	114,000	117,644	133,320
Total cash receipts	130,080	136,724	159,240
Estimated cash payments for:
Manufacturing costs	49,600	56,200	66,500
Selling and administrative expenses	39,000	43,000	48,000
Capital expenditures			52,000
Other purposes:
Income tax		19,000
Dividends			10,000
Total cash payments	88,600	118,200	176,500
Cash increase or (decrease)	41,480	18,524	-17,260
Cash balance at beginning of month	51,000	92,480	111,004
Cash balance at end of month	92,480	111,004	93,744
Minimum cash balance	40,000	40,000	40,000
Excess or (deficiency)	52,480	71,004	53,744

Working:

Sonoma Housewraes Inc.
Sales Budget
For the quarter ended July 31
	Month
Particulars	May	June	July	Total
Sales	134,000	159,000	216,000	509,000
Total Sales	$134,000	$159,000	$216,000	$509,000
Cash sales (12%)	16,080	19,080	25,920	61,080
Credit sales (88%)	117,920	139,920	190,080	447,920
Sonoma Housewraes Inc.
Schedule of expected Cash collections
For the quarter ended July 31
	Month
Particulars	May	June	July	Total
Cash sales (12%)	16,080	19,080	25,920	61,080
Beginning Accounts Receivable (a)				0
March	32,100			32,100
April	81,900	35,100		117,000
Credit Sales (88%)				0
May		82,544	35376	117,920
June			97,944	97,944
July				0
Total collections	114,000	117,644	133,320	364,964
Sonoma Housewraes Inc.
Manufacturing Costs
For the quarter ended July 31
	Month
Particulars	May	June	July	Total
Total cost	56,000	68,000	78,000	202,000
Less: Dep, Insurance and property tax	-10,000	-10,000	-10,000	-30,000
Remaining	46,000	58,000	68,000	172,000
paid in same month (85%)	39,100	49,300	57,800	146,200
Paid in next month (15%)		6,900	8,700	15,600
Total paid	39,100	56,200	66,500	161,800
Paid for April	10,500
Total paid	49,600	56,200	66,500	161,800