Question

Cash Budget 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 $160,000 $185,000 $200,000 Manufacturing costs 66,000 82,000 105,000 Selling and administrative expenses 40,000 46,000 51,000 Capital expenditures _ _ 120,000 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 remainder the following month (second month after sale). Depreciation, insurance, and property tax expense represent $12,000 of the estimated monthly manufacturing costs. The annual 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 $42,000, marketable securities of $25,000, and accounts receivable of $198,000 ($150,000 from May sales and $48,000 from April sales). Sales on account in April and May were $120,000 and $150,000, respectively. Current liabilities as of June 1 include $13,000 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 estimated income tax payment of $24,000 will be made in July. Mercury Shoes' regular quarterly dividend of $15,000 is expected to be declared in July and paid in August. Management desires to maintain a minimum cash balance of $40,000. Required: 1. Prepare a monthly cash budget and supporting schedules for June, July, and August 2016. Enter all amounts as positive numbers except for Cash (decrease) and (deficiency). Use the minus sign to indicate an overall cash decrease and deficiency. Mercury Shoes Inc. Cash Budget For the Three Months Ending August 31, 2016 June July August 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 or (deficiency)

Answer 1

mercury shoes inc
cash budget
for the three months ending august 31 2016
particulars	june	july	august
estimated cash receipts :
cash sales (10% of sales)	16000	18500	20000
collection of account receivables (working note)	138000	146400	157500
TOTAL CASH RECEIPTS	154000	164900	177500
estimated cash payments for :
manufacturing costs	56200	66800	88400
selling and administrative expenses	40000	46000	51000
capital expenditure	-	-	120000
other expenses :
income tax	-	24000	-
dividends	-	-	15000
TOTAL CASH PAYMENTS	96200	136800	274400
cash increase / (decrease)	57800	28100	(96900)
cash balance at the begining of the month	42000	99800	127900
cash balance at the end of month (carry forword to next month opening balance)	99800	127900	31000
less : minimum cash balance	(40000)	(40000)	(40000)
EXCESS or (DEFICIENCY)	59800	87900	(9000)

working note

sales amount collection 60% in current month and remaining 40% is next month

collection of account receivables
particulars	june	july	august
collection on account :
april sales (198000 - 150000)	48000
may sales (150000)	90000	60000
june sales (160000 - 10% cash paid) = 144000		86400	57600
july sales (185000 - 10% cash paid) = 166500			99900
collection of account receivabkes	138000	146400	157500