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	$106,000		$128,000		$179,000
Manufacturing costs	45,000		55,000		64,000
Selling and administrative expenses	31,000		35,000		39,000
Capital expenditures	_		_		43,000

The company expects to sell about 10% 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 $10,000 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 $40,000, marketable securities of $57,000, and accounts receivable of $118,500 ($93,000 from April sales and $25,500 from March sales). Sales on account for March and April were $85,000 and $93,000, 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. Sonomas regular quarterly dividend of $10,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $31,000.

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	$fill in the blank fa0a09facfe6fd6_1	$fill in the blank fa0a09facfe6fd6_2	$fill in the blank fa0a09facfe6fd6_3
Collection of accounts receivable	fill in the blank fa0a09facfe6fd6_4	fill in the blank fa0a09facfe6fd6_5	fill in the blank fa0a09facfe6fd6_6
Total cash receipts	$fill in the blank fa0a09facfe6fd6_7	$fill in the blank fa0a09facfe6fd6_8	$fill in the blank fa0a09facfe6fd6_9
Estimated cash payments for:
Manufacturing costs	$fill in the blank fa0a09facfe6fd6_10	$fill in the blank fa0a09facfe6fd6_11	$fill in the blank fa0a09facfe6fd6_12
Selling and administrative expenses	fill in the blank fa0a09facfe6fd6_13	fill in the blank fa0a09facfe6fd6_14	fill in the blank fa0a09facfe6fd6_15
Capital expenditures			fill in the blank fa0a09facfe6fd6_16
Other purposes:
Income tax		fill in the blank fa0a09facfe6fd6_17
Dividends			fill in the blank fa0a09facfe6fd6_18
Total cash payments	$fill in the blank fa0a09facfe6fd6_19	$fill in the blank fa0a09facfe6fd6_20	$fill in the blank fa0a09facfe6fd6_21
Cash increase or (decrease)	$fill in the blank fa0a09facfe6fd6_22	$fill in the blank fa0a09facfe6fd6_23	$fill in the blank fa0a09facfe6fd6_24
Cash balance at beginning of month	fill in the blank fa0a09facfe6fd6_25	fill in the blank fa0a09facfe6fd6_26	fill in the blank fa0a09facfe6fd6_27
Cash balance at end of month	$fill in the blank fa0a09facfe6fd6_28	$fill in the blank fa0a09facfe6fd6_29	$fill in the blank fa0a09facfe6fd6_30
Minimum cash balance	fill in the blank fa0a09facfe6fd6_31	fill in the blank fa0a09facfe6fd6_32	fill in the blank fa0a09facfe6fd6_33
Excess (deficiency)	$fill in the blank fa0a09facfe6fd6_34	$fill in the blank fa0a09facfe6fd6_35	$fill in the blank fa0a09facfe6fd6_36

Feedback

The primary source of estimated cash receipts is from cash sales and collections on account.

To estimate cash receipts from cash sales and collections on account, a schedule of collections from sales is prepared.

2. The budget indicates that the minimum cash balance

willwill notwill not

be maintained in July. This situation can be corrected by

investingborrowingborrowing

and/or by the

purchasesalesale

of the marketable securities, if they are held for such purposes. At the end of May and June, the cash balance will

exceedbe short ofexceed

the minimum desired balance.