000 1 w PR 22-40 Cash budget OBJ.5 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 ac- count, 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 an- nual 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 $12,000, 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 wants to maintain a minimum cash balance of $10,000, Instructions 1. Prepare a monthly cash budget and supporting schedules for June, July, and August On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller? ADM 13 74 1. 15 16 17 18 19 20 21 22 23 August $ 20,000 MERCURY SHOES INC. Cash Budget For the Three Months Ending June 30 June July Estimated cash receipts from: Cash sales $ 16,000 $ 18,500 Collections from 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 (decrease) Cash balance at beginning of month Cash balance at end of month 24 25 26 27 28 29 30 31 32 33