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	$121,000		$154,000		$207,000
Manufacturing costs	51,000		66,000		75,000
Selling and administrative expenses	35,000		42,000		46,000
Capital expenditures	_		_		50,000

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 $6,000 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 $46,000, marketable securities of $65,000, and accounts receivable of $139,950 ($106,000 from April sales and $33,950 from March sales). Sales on account for March and April were $97,000 and $106,000, respectively. Current liabilities as of May 1 include $13,000 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 $18,000 will be made in June. Sonoma’s regular quarterly dividend of $6,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $36,000.

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)	$	$	$

2. The budget indicates that the minimum cash balance   be maintained in July. This situation can be corrected by   and/or by the   of the marketable securities, if they are held for such purposes. At the end of May and June, the cash balance will   the minimum desired balance.

Answer 1

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.

.

12% on cash remaining on credit of 88%

May credit sales = 121000 * 88% = 106480

June credit sales = 154000 * 88% = 135520

July credit sales = 207000 * 88% = 182160

Computation of Collection from Customer
Particulars	May	June	July
Credit sales	106480	135520	182160
Collection for March Sales	33950
Collection for April Sales= 106000	68900	37100
May = 65% : June = 35%
Collection for May Sales		69212	37268
Collection for June Sales			88088
Total cash collections	102850.00	106312.00	125356.00
cash = manufacturing cost ( manufacturing cost- 6000)
45000.00	60000.00	69000.00
Remaining 6000 is depreciation = Non cash expenses
Computation of Cash payment of manufacturing costs
Particulars	May	June	July
Payment for April Manufacturing cost	13000
Payment for May Manufacturing cost = May = 85%; June = 15%	38250	6750
Payment for June Manufacturing cost = May = 85%; June = 15%		51000	9000
Payment for July Manufacturing cost = May = 85%; June = 15%			58650
Total cash disbursements	51250	57750	67650
.
Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
Particulars	May	June	July
Estimated cash receipts from:
Cash sales = 12% of sales	14520	18480	24840
Collection of accounts receivable	102850.00	106312.00	125356.00
Total cash receipts	117370.00	124792.00	150196.00
Less estimated cash payments for:
Manufacturing costs	51250	57750	67650
Selling and administrative expenses	35000	42000	46000
Capital expenditures			50000
Other purposes:
Income tax		18000
Dividends			6000
Total cash payments	86250	117750	169650
Cash increase or (decrease)	31120.00	7042.00	-19454.00
Plus cash balance at beginning of month	46000	77120.00	84162.00
Cash balance at end of month	77120.00	84162.00	64708.00
Less minimum cash balance	36000	36000	36000
Excess or (deficiency)	41120.00	48162.00	28708.00

.

2. The budget indicates that the minimum cash balance   be maintained in July. This situation can be corrected by   and/or by the   of the marketable securities, if they are held for such purposes. At the end of May and June, the cash balance will   the minimum desired balance.