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	$102,000		$132,000		$168,000
Manufacturing costs	43,000		57,000		60,000
Selling and administrative expenses	30,000		36,000		37,000
Capital expenditures	_		_		40,000

The company expects to sell about 12% of its merchandise for cash. Of sales on account, 60% 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 $8,000 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 $39,000, marketable securities of $55,000, and accounts receivable of $121,800 ($89,000 from April sales and $32,800 from March sales). Sales on account for March and April were $82,000 and $89,000, respectively. Current liabilities as of May 1 include $11,000 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 $16,000 will be made in June. Sonoma’s regular quarterly dividend of $8,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $30,000.

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

Monthly cash budget and supporting schedules for May, June, and July:

Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
	May	June	July
Estimated cash receipts from:
Cash sales	$12,240	$15,840	$20,160
Collection of accounts receivable (W.N 1)	86,200	96,800	120,000
Total cash receipts	$98,440	$112,640	$140,160
Estimated cash payments for:
Manufacturing costs (W.N 2)	$37,250	$45,500	$51,250
Selling and administrative expenses	30,000	36,000	37,000
Capital expenditures			40,000
Other purposes:
Income tax		16,000
Dividends			8,000
Total cash payments	$67,250	$97,500	$136,250
Cash increase or (decrease)	$31,190	$15,140	$3,910
Cash balance at beginning of month	39,000	70,190	85,330
Cash balance at end of month	$70,190	$85,330	$89,240
Minimum cash balance	30,000	30,000	30,000
Excess (deficiency)	$40,190	$55,330	$59,240

Collection from customer (W.N 1)

Particulars	May	June	July
Collection from March Sales	32,800
Collection from April Sales (89,000*60% in may remaining in June	53,400	35,600
Collection from May Sales		61,200	40,800
Collection from June Sales			79,200
Total	86,200	96,800	120,000

Manufacturing Costs:

Particulars	May	June	July
April Manufacturing cost	11,000
May Manufacturing cost (43,000 - 8000)*75% in may (43,000 - 8000)*25% in June	26,250	8,750
June Manufacturing cost		36,750	12,250
July Manufacturing cost			39,000
Total	37,250	45,500	51,250