Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Discuss the purpose of the cash budget. If the cash for the first quarter of the fiscal year indicates excess cash at the end of


  1. Discuss the purpose of the cash budget.
  2. If the cash for the first quarter of the fiscal year indicates excess cash at the end of each of the first two months, how might the excess cash be used?
  3. Give an example of how the capital expenditures budget affects other operating budgets.

The controller of the Box Company instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information.

Current assets as of May 1 include cash of $33,000, marketable securities of $40,000, and accounts receivable of $90,000 ($72,000 from April sales and $18,000 from March sales).

                                                                        May                 June              July

Sales                                                               100000            90000              80000

Manufacturing Costs                                       40000            60000              50000

Selling and Admin Expenses                          15000            30000              20000

Capital Expenditures                                                                                      50000

The company expects to sell about 10% of its merchandise for cash. Of the remaining 90% 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).

Of the manufacturing costs, 80% are expected to be paid in the month in which they are incurredand the balance in the following month. Current liabilities as of May 1 include $6,000 of accounts payable incurred in April for manufacturing costs which will be collected in May.

All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $14,000 will be made in June. Sonoma's regular qtrly dividend of $5,000 is expected to be declared in June and paid in July.

Instructions

  1. Prepare a monthly cash budget and supporting schedules for May, June, and July 2016.
  2. Management desires to maintain a minimum cash balance of $30,000.  On the basis of the cash budget prepared in part (1), will they meet their goal  ? What recommendation could be made to the controller to increase cash?

Step by Step Solution

3.48 Rating (155 Votes )

There are 3 Steps involved in it

Step: 1

1 Purpose of the Cash Budget The cash budget is a crucial financial tool used by businesses to forecast and manage cash flows over a specific period t... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting

Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren

23rd Edition

978-0324662962

More Books

Students also viewed these Accounting questions