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 $128,000 $164,000 43,000 55,000 59,000 Manufacturing costs Selling and administrative expenses 30,000 35,000 36,000 Capital expenditures 39,000 The company expects to sell about 15% of its merchandise for cash. Of sales on account, 70% 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 $6,000 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, 85% 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 $113,600 ($89,000 from April sales and $24,600 from March sales). Sales on account for March and April were $82,000 and $89,000, respectively. Current liabilities as of May 1 include $11,500 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 $15,000 will be made in June. Sonoma's regular quarterly dividend of $6,000 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 Estimated cash receipts from: July 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 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 and/or by the May and June, the cash balance will be maintained in July. This situation can be corrected by of the marketable securities, if they are held for such purposes. At the end of the minimum desired balance
