Question

The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following An accounting device used to plan and control resources of operational departments and divisions.budget information:

Prepare a monthly cash budget and supporting schedules for June, July, and August. Enter all amounts as positive numbers except for Cash (decrease) and (deficiency). Use the minus sign to indicate an overall cash decrease and deficiency.

Answer 1

YOU HAVE NOT ENTERED AMOUNT BUT I HAVE SIMILAR QUESTION LIKE THIS HOPE IT HEPLS,

QUESTION

The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

	June	July	August
Sales	160000	185000	200000
Manufacturing costs	66000	82000	105000
selling and administrative expenses	40000	46000	51000
Capital expenditures	-	-	120000

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainderthe following month ( second month after sale). Deprecation, insurance, and property taxs expense represent 12000 of the estimated monthly manufacturing costs. The anual insurance premium is paid in February, 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 June 1 include cash of 42000, marketable securities of 25000, and accounts recievable of 198000 (150000 from May sales and 48000 from April sales). Sales on account in April and May were 120000 and 150000, respectively. Current Liabilities as of June 1 include 13000 of accounts payable incurred in May for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimate income tax payment of 24000 will be made in July.Mercury Shoes regular quarterly dividend of 15000 is expected to be declared in July and paid in August. Management desires to maintain a minimum cash balance of 40000.

1 Prepare a monthly cash budget and supporting schedules for June, July, and August 2016.

2 On the basis of the cash budget prepared in part (1) , what recommendation should be made to the controller?

ANSWER:

1)

Mercury Shoes Inc
Cash Budget ($)
For the three months ending 31st August, 2014
	June	July	August
Cash receipts from:
Cash sales	16000	18500	20000
Collection of Accounts receivable	138000	146400	157500
Total cash receipts	154000	164900	177500
Estimated Cash payment for:
Manufacturing Costs	56200	66800	88400
selling and Admin. Expenses	40000	46000	51000
Capital Expenditure			120000
Income Tax		24000
Dividends			15000
Total cash disbursements	96200	136800	274400
Excess receipt or (deficiency) over disbursements	57800	28100	-96900
Cash Balance at the beginning of the month	42000	99800	127900
Cash balance at end of month	99800	127900	31000
Minimum cash balance	40000	40000	40000
Excess / deficincy	59800	87900	-9000

Workings

Schedule of collection of cash from sale ($)
Month	Total Credit Sales	Accounts receivable	collected in ($)
			June	July	August
April		48000	48000
May		150000	90000	60000
June	144000			86400	57600
July	166500				99900
August	180000
Total Collection	490500	198000	138000	146400	157500

Payment of Manufacturing costs ($)
Month	June	July	August
Manufacturing Costs	66000	82000	105000
Less: depreciation, insurance and property tax	-12000	-12000	-12000
Adjusted manufacturing cost	54000	70000	93000
Paid in the month of incurrence (80%)	43200	56000	74400
paid in the following month (20%)	-	10800	14000
paid the due at the end of May	13000	-	-
Total payment during the month	56200	66800	88400

2) The cash balance at the end of the month of August is $31000, which is less than the minimum desired ending cash balance of $40000. To maintain the ending cash balance at $40000, the company has to borrow an amount of $9000.