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:

1. 	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)	$	$	$

   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.)

Computation of Collection from Customer
Particulars	May	June	July
Collection for March Sales	32800
Collection for April Sales	53400	35600
Collection for May Sales		61200	40800
Collection for June Sales			79200
Total cash collections	86200	96800	120000

Computation of Cash payment of manufacturing costs
Particulars	May	June	July
Payment for April Manufacturing cost	11000
Payment for May Manufacturing cost	32250	10750
Payment for June Manufacturing cost		42750	14250
Payment for July Manufacturing cost			45000
Total cash disbursements	43250	53500	59250

Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
Particulars	May	June	July
Estimated cash receipts from:
Cash sales	12240	15840	20160
Collection of accounts receivable	86200	96800	120000
Total cash receipts	98440	112640	140160
Less estimated cash payments for:
Manufacturing costs	43250	53500	59250
Selling and administrative expenses	30000	36000	37000
Capital expenditures			40000
Other purposes:
Income tax		16000
Dividends			8000
Total cash payments	73250	105500	144250
Cash increase or (decrease)	25190	7140	-4090
Plus cash balance at beginning of month	39000	64190	71330
Cash balance at end of month	64190	71330	67240
Less minimum cash balance	30000	30000	30000
Excess or (deficiency)	34190	41330	37240

2.) The answer for question 2 cannot be written in the format provided in the question because in july we have excess cash.