Question

Cash Budget 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 Manufacturing costs $86,000 34,000 15,000 $90,000 39,000 16,000 $95,000 44,000 22,000 Selling and administrative expenses Capital expenditures - 80,000 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 $3,500 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 $33,000, marketable securities of $40,000, and accounts receivable of $90,000 ($72,000 from April sales and $18,000 from March sales). Sales on account for March and April were $60,000 and $72,000, respectively. Current liabilities as of May 1 include $5,000 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 $14,000 will be made in June. Sonoma's regular quarterly dividend of $5,000 is expected to be declared in June and paid in July, Management wants to maintain a minimum cash balance of $30,000. Required: 1. Prepare a monthly cash budget and supporting schedules for May June, and July 2016. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sgn. Sonoma Housewares Inc Cash Budget For the Three Months Ending July 31 May June Estimated cash receipts from

Answer 1

Solution 1:

Computation of Collection from Customer
Particulars	May	June	July
Collection for March Sales	$18,000.00
Collection for April Sales	$50,400.00	$21,600.00
Collection for May Sales		$54,180.00	$23,220.00
Collection for June Sales			$56,700.00
Total cash collections	$68,400.00	$75,780.00	$79,920.00

Computation of Cash payment of manufacturing costs
Particulars	May	June	July
Payment for April Manufacturing cost	$6,000.00
Payment for May Manufacturing cost	$24,400.00	$6,100.00
Payment for June Manufacturing cost		$28,400.00	$7,100.00
Payment for July Manufacturing cost			$32,400.00
Total cash disbursements	$30,400.00	$34,500.00	$39,500.00

Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
Particulars	May	June	July
Estimated cash receipts from:
Cash sales	$8,600.00	$9,000.00	$9,500.00
Collection of accounts receivable	$68,400.00	$75,780.00	$79,920.00
Total cash receipts	$77,000.00	$84,780.00	$89,420.00
Less estimated cash payments for:
Manufacturing costs	$30,400.00	$34,500.00	$39,500.00
Selling and administrative expenses	$15,000.00	$16,000.00	$22,000.00
Capital expenditures			$80,000.00
Other purposes:
Income tax		$14,000.00
Dividends			$5,000.00
Total cash payments	$45,400.00	$64,500.00	$146,500.00
Cash increase or (decrease)	$31,600.00	$20,280.00	-$57,080.00
Plus cash balance at beginning of month	$33,000.00	$64,600.00	$84,880.00
Cash balance at end of month	$64,600.00	$84,880.00	$27,800.00
Less minimum cash balance	$30,000.00	$30,000.00	$30,000.00
Excess or (deficiency)	$34,600.00	$54,880.00	-$2,200.00