PR 21-4B Cash budget Obj.5 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: SHOW ME HOW FYER TEMPLATE Sales Manufacturing costs..... Selling and administrative expenses Capital expenditures June $160,000 66,000 40,000 July $185,000 82,000 46,000 August + $200,000 105,000 51,000 120,000 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 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 desires to maintain a minimum expected to be declared in July and paid in August. Management desires to maintain a minimum cash balance of $40,000. Instructions 1. Prepare a monthly cash budget and supporting schedules for June, July, and August. Answer 2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller? A F H K N M $ $ B D Cash balance at end of month Minimum cash balance Excess (deficiency) E 99,800 40,000 59,800 G 5 127 900 40,000 5 87.900 31,000 40,000 (9.000) $ Supporting calculations: Collections of accounts receivable: Sales on Account Percentage June July August April sales May sales Collected in June Collected in July June sales Collected in July Collected in August July sales Payments for manufacturing costs Costs on X M M33 J K H E F G B AA 19 50 51 52 53 D Collected in July Collected in August July sales Payments for manufacturing costs Costs on Account Percentage Payments 58 59 60 61 62 63 64 Paid in June Incurred in May Incurred in June Total Paid in July Incurred in June incurred in July Total Paid in August Incurred in July Incurred in August Total II 65 66 67 68 69 70