Question

Monthly Cash Budget
Sutter, Inc. is a wholesaler for its only product, deluxe wireless rechargeable electric shavers, which sell for $70 each and cost Sutter $48 each. On June 1, 2019, Sutter’s management requested a cash budget for June. The following selected account balances at May 31, 2019, were gathered by the accounting department:

Cash				$56,000
Marketable securities (at cost)				160,000
Accounts receivable (all trade)				2,170,000
Inventories (12,000 units)				576,000
Operating expenses payable				196,800
Accounts payable (all merchandise)				902,400
Note payable (due 12/31/2019)				600,000

Actual sales for April and May were 30,000 and 50,000 units, respectively. Projected unit sales for June and July are 40,000 and 20,000, respectively. Experience indicates that 50% of sales should be collected in the month of sale, 30% in the month following sale, and the balance in the second month following sale. Uncollectible accounts, returns, and allowances are negligible.

Planned purchases should provide ending inventories equal to 30% of next month’s unit sales volume. Approximately 60% of the purchases are paid for in the month of purchase and the balance in the following month.

Monthly operating expenses are budgeted at $9.60 per unit sold plus a fixed amount of $288,000 including depreciation of $112,000. Except for depreciation, 70% of operating expenses are paid in the month incurred and the balance in the following month. Interest expense is included in operating expenses.

Special anticipated June transactions include the following:
1. Declaration of a $60,000 cash dividend to be paid 2 weeks after the June 20 date of record.
2. Sale of all but $40,000 of the marketable securities held on May 31; a gain of $18,000 is anticipated.
3. Payment of $50,000 installment on the note payable.
4. Trade-in of an old company plane originally costing $300,000 and now having accumulated depreciation of $200,000 at a gain of $160,000 on a new plane costing $2,000,000. Sufficient cash will be paid at the time of trade-in so that only 50% of the total price will have to be financed.
5. Sutter’s treasurer has a policy of maintaining a minimum month-end cash balance of $40,000 and has a standing arrangement with the bank to borrow any amount up to a limit of $400,000.

Prepare a cash budget for Sutter, Inc., for June 2019.

Collections in June from customers:

From April sales
From May sales
From June sales
Total collections

Payments on account for merchandise purchases:

	May	June
Unit Sales
Ending inventories
Total units to be available
Beginning inventories
Units to be purchased
Total dollar purchases
Portion paid in June

Payment of operating expenses:

	May	June
Total variable operating expenses
Fixed operating expenses
Total operating expenses
Monthly depreciation
Operating expenses requiring payment
Amounts to be paid in June

Cash required at time of plane purchase:

Cost of new plane
Book value of old plane
Gain on trade-in
Total trade-in allowance
Balance owing at trade-in
Portion to be financed
Cash payment required

Sutter, Inc. Cash Budget For the Month Ended June 30, 2019
Beginning cash balance
Cash receipts:
Collections from customers (calculated above)
Payment on dividends declaredPaymenton note payableSale on securities
Short-term borrowing
Cash available
Cash disbursements:
Payments on accounts payable (calculated above)
Payments of operating expenses payable (calculated above)
Payment on airplane (calculated above)
Payment on dividends declaredPaymenton note payableSale on securities
Total cash disbursements
Ending cash balance

Answer 1

	Sutter, Inc.
	Cash Budget
	For the Month Ended June 30, 2019	$
	Beginning cash balance	56000
	Cash receipts:
	Collections from customers (calculated below)	2870000
	Sale on securities	178000
	Short-term borrowing	214400
	Cash available	3262400
	Cash disbursements:
	Payments on accounts payable (calculated below)	1881600
	Payments of operating expenses payable (calculated below)	476800
	Payment on an airplane (calculated below)	870,000
	Payment on dividends declared	0
	Payment on note payable	50000
	Total cash disbursements	3278400
	Ending cash balance	40000
	Collections in June from customers:
	From April sales	420000
	From May sales	1050000
	From June sales	1400000
	Total collections	2870000
Note : Dividend is paid 2 weeks afterrecord date of June 20th which falls in July.
Hence no payment in cash is made in june.

Payments on account for merchandise purchases:
	May	June
Unit Sales	50000	40000
Ending inventories	12000	6000
Total units to be available	62000	46000
Beginning inventories	15000	12000
Units to be purchased	47000	34000
Total dollar purchases	2256000	1632000
Portion paid in June		1881600
Payment of operating expenses:
	May	June
Total variable operating expenses	480000	384000
Fixed operating expenses	176000	176000
Total operating expenses	656000	560000
Monthly depreciation	112000	112000
Operating expenses requiring payment	544000	448000
Amounts to be paid in June		476800
Cash required at time of plane purchase:
Cost of new plane	2,000,000
Book value of old plane	100000
Gain on trade-in	160000
Total trade-in allowance	260000
Balance owing at trade-in	1,740,000
Portion to be financed @50%	870,000
Cash payment required @50%	870,000

Collection From Account Receivable
	April	May	June	July
Units Sold	30000	50000	40000	20000
S.P per Unit	70	70	70	70
Sales	2100000	3500000	2800000	1400000
Collection
50% in current month	1050000	1750000	1400000	700000
30% in following month		630000	1050000	840000
20% in second month			420000	700000
			2870000

Calculation of payment made for purchases
	April	May	June
Purchases		2256000	1632000
60% in current month		1353600	979200
40% in next month			902400
			1881600

Calculation of payment made for operating expenses
		May	June
Operating Expenses requiring payment	544000	448000
70%in current month		380800	313600
30% in following month			163200
			476800