PR 21-4A Cash Budgets

The controller of Santa Fe Housewares Inc. instructs you to prepare a monthly cash bud-

get for the next three months. You are presented with the following budget information:

March April May

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$70,000 $84,000 $92,000

Manufacturing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32,00039,000 42,500

Selling and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . .12,00018,000 21,000

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20,000

The company expects to sell about 10% 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 tax expense repre-

sent $3,000 of the estimated monthly manufacturing costs. The annual insurance premium

is paid in July, 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 March 1 include cash of $10,000, marketable securities of $40,000,

and accounts receivable of $75,600 ($60,000 from February sales and $15,600 from Janu-

ary sales). Sales on account for January and February were $52,000 and $60,000, respec-

tively. Current liabilities as of March 1 include a $12,000, 15%, 90-day note payable due

May 20 and $4,000 of accounts payable incurred in February for manufacturing costs. All

selling and administrative expenses are paid in cash in the period they are incurred. It

is expected that $1,800 in dividends will be received in March. An estimated income tax

payment of $16,000 will be made in April. Santa Fes regular quarterly dividend of $3,000

is expected to be declared in April and paid in May. Management desires to maintain a

minimum cash balance of $30,000.

Instructions

Prepare a monthly cash budget and supporting schedules for March, April, and May.