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 $128,000 $155,000 $216,000

Manufacturing costs 54,000 67,000 78,000

Selling and administrative expenses 37,000 42,000 48,000

Capital expenditures _ _ 52,000

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 following sale). Depreciation, insurance, and property tax expense represent $7,000 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 $49,000, marketable securities of $69,000, and accounts receivable of $152,800 ($112,000 from April sales and $40,800 from March sales). Sales on account for March and April were $102,000 and $112,000, 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 $19,000 will be made in June. Sonoma’s regular quarterly dividend of $7,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $38,000.

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 $

12,800

$

15,500

$

21,600

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

Collection of cash:
	May	June	July
March	40800
April	67200	44800
May	12800	69120	46080
June		15500	83700
July			21600
Total	120800	129420	151380
Disbursements of cash:
	May	June	July
April	13000
May (47000)	37600	9400
June(60000)		48000	12000
July (71000)			56800
Total	50600	57400	68800
Cash Budget :
	May	June	July
OB of Cash	49000	82200	93220
add: Collection	120800	129420	151380
Total available	169800	211620	244600
Disbursements:
Manuf. Costs	50600	57400	68800
Selling & Admin	37000	42000	48000
Income tax		19000
Dividend			7000
Capital expenditures			52000
total disbursements	87600	118400	175800
Excess of cash over disbursements	82200	93220	68800
Closing Balance of cash	82200	93220	68800
Minimum Balance	38000	38000	38000
Excess or Deficit	44200	55220	30800