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1. August deficiency, $9,000 June SHOW ME HOW PR 22-48 Cash budget OBJ. The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: July August Sales $160,000 $185,000 $200,000 Manufacturing costs. 66,000 82,000 105,000 Selling and administrative expenses... 40,000 46,000 51,000 Capital expenditures 120,000 The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month after sale). Depreciation, insurance, and property tax expense represent $12,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in February, and the annual property taxes are paid in November of the remainder of the manufacturing costs, 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 June 1 include cash of $42,000, marketable securities of $25,000 and accounts receivable of $198,000 ($150,000 from May sales and $48.000 from April sales), Sales on account in April and May were $120,000 and $150,000, respectively. Current liabilities as of June 1 include $13,000 of accounts payable incurred in May for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $24,000 will be made in July Mercury Shoes regular quarterly dividend of $15,000 is expected to be declared in July and paid in August. Management wants to maintain a minimum cash balance of $40,000 Instructions 1. Prepare a monthly cash budget and supporting schedules for June, July, and August. 2 On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller? A D M 14 15 16 17 Save August $ 20,000 157.500 $ 177,500 $ MERCURY SHOES INC. Cash Budget For the Three Months Ending June 30 June July Estimated cash receipts from: Cash sales $ 16,000 $ 18,500 Collections from accounts receivable 138,000 146,400 Total cash receipts $ 154,000 $164.900 Estimated cash payments for Manufacturing costs $ 56 200 66,800 Selling and administrative expenses 40,000 46,000 Capital expenditures Other purposes Income tax 24,000 Dividends Total cash payments $ 96,200 $ 136,800 $ 57 800 S Cash increase (decrease) 28.100 42 000 99,800 Cash balance at beginning of month S Cash balance at end of month 99,800 $ 127,900 40.000 40,000 Minimum cash balance $ 5 59,800 Excess (deficiency) 87.900 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 88.400 51,000 120,000 15,000 $ 274,400 5 (96.900) 127.900 $ 31,000 40.000 $ (9,000 Supporting calculations: Collections of accounts receivable: Sales on Account $ 120,000 Percentage 40% June 48.000 July August 90,000 April sales May sales: Collected in June Collected in July June sales Collected in July Collected in August July sales 60% 40% 60,000 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 86,400 60% 40% 60% 57,500 99.900 $ 157,500 $ 138,000 $ 146,400 Payments for manufacturing costs Costs on Account Percentage Payments $ Paid in June Incurred in May Incurred in June Total Paid in July 54.000 80% 13,000 43 200 56,200 $