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 $$141,000$ $$171,000$ $$227,000$

Manufacturing costs $59,00074,00082,000$

Selling and administrative expenses $41,00046,00050,000$

Capital expenditures $\_\_120,000$

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 $$8,000$ 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 $$54,000,$ marketable securities of $$76,000,$ and accounts receivable of $$156,900($$$123,000$ from April sales and $$33,900$ from March sales$).$ Sales on account for March and April were $$113,000$ and $$123,000,$ respectively. Current liabilities as of May $1$ include $$12,500$ 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 $$21,000$ will be made in June. Sonoma$$s regular quarterly dividend of $$8,000$ is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $$42,000.$

Required:

Question Content Area

$1.$ 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 ba$4438087054036\_1$

$21,150$

$fill in the blank ba$4438087054036\_2$

$25,650$

$fill in the blank ba$4438087054036\_3$

$34,050$

Collection of accounts receivable fill in the blank ba$4438087054036\_4$

fill in the blank ba$4438087054036\_5$

fill in the blank ba$4438087054036\_6$

Total cash receipts $fill in the blank ba$4438087054036\_7$

$124,200$

$fill in the blank ba$4438087054036\_8$

$81,900$

$fill in the blank ba$4438087054036\_9$

$140,850$

Estimated cash payments for:

Manufacturing costs $fill in the blank ba$4438087054036\_10$

$50,750$

$fill in the blank ba$4438087054036\_11$

$62,250$

$fill in the blank ba$4438087054036\_12$

$72,000$

Selling and administrative expenses fill in the blank ba$4438087054036\_13$

$41,000$

fill in the blank ba$4438087054036\_14$

$74,000$

fill in the blank ba$4438087054036\_15$

$82,000$

Capital expenditures fill in the blank ba$4438087054036\_16$

$120,000$

Other purposes:

Income tax fill in the blank ba$4438087054036\_17$

$21,000$

Dividends fill in the blank ba$4438087054036\_18$

$8,000$

Total cash payments $fill in the blank ba$4438087054036\_19$

$91,750$

$fill in the blank ba$4438087054036\_20$

$157,250$

$fill in the blank ba$4438087054036\_21$

$282,000$

Cash increase or $($decrease$)$ $fill in the blank ba$4438087054036\_22$

$32,450$

$fill in the blank ba$4438087054036\_23$

$-83,250$

$fill in the blank ba$4438087054036\_24$

$-141,150$

Cash balance at beginning of month fill in the blank ba$4438087054036\_25$

$76,000$

fill in the blank ba$4438087054036\_26$

$108,450$

fill in the blank ba$4438087054036\_27$

$25,200$

Cash balance at end of month $fill in the blank ba$4438087054036\_28$

$108,450$

$fill in the blank ba$4438087054036\_29$

$25,200$

$fill in the blank ba$4438087054036\_30$

$-115,950$

Minimum cash balance fill in the blank ba$4438087054036\_31$

$42,000$

fill in the blank ba$4438087054036\_32$

$42,000$

fill in the blank ba$4438087054036\_33$

$42,000$

Excess $($deficiency$)$ $fill in the blank ba$4438087054036\_34$

$66,450$

$fill in the blank ba$4438087054036\_35$

$-16,800$

$fill in the blank ba$4438087054036\_36$

$-157,950$

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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.

Question Content Area

$2.$ The budget indicates that the minimum cash balance

will not

be maintained in July. This situation can be corrected by

borrowing

and$/$or by the

sale

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

exceed

the minimum desired balance.