CASH BUDGET

The treasurer of Bradly Lawn Equipment Company instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

August September October

Sales $ 310,000 $ 390,000 $ 366,000

Manufacturing costs 190,000 240,000 215,000

Operating expenses 56,000 71,000 65,000

Capital expenditure 24,000

The company expects to sell about 20% of its merchandise for cash. Of sales on account, 70% are expected to be collected in full in the month following the sale and the remainder the following month. Depreciation, insurance, and property taxes represent $20,000 of the estimated monthly manufacturing costs and 34,000 of the probable monthly operating expenses. The annual insurance premium is paid in July and the annual property taxes are paid in November. Of the remainder if the manufacturing costs and operating expenses, 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 August 1 comprise cash of $32,000, marketable securities of $40,000, and accounts receivable of $261,800 ($220,000 from July sales and $41,800 from June sales). Current liabilities as of August1 comprise a $60,000, 12%, 60-day note payable due September 20, $30,000 of accounts payable incurred in July for manufacturing costs, and accrued liabilities of $9,500 incurred in July operating expenses.

It is expected that $1,500 in dividends will be received in August. An estimated income tax payment of $21,000 will be made in September. Bradleys regular quarterly dividend of $10,000 is expected to be declared in September and paid in October. Management desires to maintain a minimum cash balance of $25,000.

Instructions

1. Prepare a monthly cash budget for August, September and October

2. On the basis of the cash budget prepared in (1), what recommendation should be made to the treasurer