Question

1. 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 An accounting device used to plan and control resources of operational departments and divisions.budget information:

   	May		June		July
   Sales	$117,000		$146,000		$192,000
   Manufacturing costs	49,000		63,000		69,000
   Selling and administrative expenses	34,000		39,000		42,000
   Capital expenditures	_		_		46,000

   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, 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 $44,000, marketable securities of $63,000, and accounts receivable of $134,900 ($102,000 from April sales and $32,900 from March sales). Sales on account for March and April were $94,000 and $102,000, 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 $9,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $34,000.

   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)	$	$	$

   Feedback

   2. The budget indicates that the minimum cash balance

   • will
   • will not
   be maintained in July. This situation can be corrected by
   • investing
   • borrowing
   and/or by the
   • purchase
   • sale
   of the marketable securities, if they are held for such purposes. At the end of May and June, the cash balance will
   • exceed
   • be short of
   the minimum desired balance.

Answer 1

Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
	May	June	July
Estimated cash receipts from:
Cash sales	14,040	17,520	23,040
Collection of accounts receivable	99,200	111,750	135,850
Total cash receipts	113,240	129,270	158,890
Estimated cash payments for:
Manufacturing costs	45,000	51,200	58,800
Selling and administrative expenses	34,000	39,000	42,000
Capital expenditures	-	-	46,000
Other purposes:
Income tax		18,000
Dividends			9,000
Total cash payments	79,000	108,200	155,800
Cash increase or (decrease)	34,240	21,070	3,090
Cash balance at beginning of month	44,000	78,240	99,310
Cash balance at end of month	78,240	99,310	102,400
Minimum cash balance	34,000	34,000	34,000
Excess (deficiency)	44,240	65,310	68,400

Schedules
Collection of Credit Sales
	May	June	July
65% in following month	66,300	76,050	94,900
35% in second month	32,900	35,700	40,950
Total Collections	99,200	111,750	135,850
Payment of Mnaufacturing costs
	May	June	July
80% in Same month	32,000	43,200	48,000
20% in following month	13,000	8,000	10,800
Payment of Mnaufacturing costs	45,000	51,200	58,800