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	$93,000		$114,000		$148,000
Manufacturing costs	39,000		49,000		53,000
Selling and administrative expenses	27,000		31,000		33,000
Capital expenditures	_		_		36,000

The company expects to sell about 12% of its merchandise for cash. Of sales on account, 65% 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 $9,000 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, 75% 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 $35,000, marketable securities of $50,000, and accounts receivable of $106,900 ($81,000 from April sales and $25,900 from March sales). Sales on account for March and April were $74,000 and $81,000, respectively. Current liabilities as of May 1 include $11,500 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 $14,000 will be made in June. Sonoma’s regular quarterly dividend of $9,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $27,000.

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

Cash sales @12% of sales value
	May	June	July
Total Sales	$ 93,000	$ 114,000	$ 148,000
Cash sales @12% of sales value	$ 11,160	$   13,680	$   17,760

Collection of accounts receivable
	March	April	May	June	July	Remarks
Sales on account	$ 74,000	$    81,000	$    81,840	$      100,320	$ 130,240	88% of total sales for May to July as 12% is monthly cash sales
65% collection in the following month	$          -	$    48,100	$    52,650	$        53,196	$    65,208
Balance 35% collection in second following month	$          -	$            -	$    25,900	$        28,350	$    28,644
Total monthly collection	$ 74,000	$ 129,100	$ 160,390	$     181,866	$ 224,092

Manufacturing costs payments
	May	June	July	Remarks
Total Manufacturing costs	$ 39,000	$    49,000	$    53,000
Less: Depreciation, insurance, and property tax	$    9,000	$      9,000	$      9,000	Excluded from the monthly cash payments as depreciation is non cash expense and the annual insurance premium is paid in September, and the annual property taxes are paid in November.
Total Manufacturing cash costs	$ 30,000	$    40,000	$    44,000
75% payments in the same month	$ 22,500	$    30,000	$    33,000
Balance 25% payments in the following month	$          -	$      7,500	$    10,000
Payment of current liabilities as of May 1	$ 11,500	$            -	$            -
Manufacturing costs payments	$ 34,000	$   37,500	$   43,000

Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
	May	June	July
Estimated cash receipts from:
Cash sales	$    11,160	$    13,680	$    17,760
Collection of accounts receivable	$ 160,390	$ 181,866	$ 224,092
Total cash receipts	$ 171,550	$ 195,546	$ 241,852
Estimated cash payments for:
Manufacturing costs	$    34,000	$    37,500	$    43,000
Selling and administrative expenses	$    27,000	$    31,000	$    33,000
Capital expenditures			$    36,000
Other purposes:
Income tax		$    14,000
Dividends			$      9,000
Total cash payments	$   61,000	$   82,500	$ 121,000
Cash increase or (decrease)	$ 110,550	$ 113,046	$ 120,852
Cash balance at beginning of month	$    35,000	$ 145,550	$ 258,596
Cash balance at end of month	$ 145,550	$ 258,596	$ 379,448
Minimum cash balance	$    27,000	$    27,000	$    27,000
Excess (deficiency)	$ 118,550	$ 231,596	$ 352,448