R 21-4B Cash budget Obj. 5The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You
R 21-4B
Cash budget
Obj. 5The 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:
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 cash balance of $40,000.
Instructions
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Prepare a monthly cash budget and supporting schedules for June, July, and August.
Answer Check Figure: August deficiency, $9,000
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On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?
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AutoSave FFA SUHE: WRD FinMan 14e_PR 21(7)-4B Home Insert Draw Page Layout Data Review View Share Comments Formulas AA A Insert Ag O .. Z Ev Conditional Formatting Format as Table Cell Styles 5 Deinde v 29.0 Y = $ % - Ideas Sort & Filter Format Sensitivity X Find & Select Paste M17 A B IU B for v August $ 20,000 Mercury Shoes Inc. Cash Budget For the Three Months Ending August 31 June July Estimated cash receipts frorn: Cash sales $ 18,000 3 18,500 Collections from accounts receivable Total cash receipts Estimated cash payments for Manufacturing costs Selling and administrative expenses Capilal expenditures Other purposes: Income tax Dividends Tolal cash payments Cash increase (decrease) Cash balance al beginning of month Cash balance al end of month Minimum cash balance Excess (deficiency) Supporting calculations: Collections of accounts receivable: July April sales May sales: Collected in June Collected in July June sales: Collected in July Collected in August July sales 12 Pr. 217)-4B + Ready E C - + 100% AutoSave FFA SUHE: WRD FinMan 14e_PR 21(7)-4B Home Insert Draw Page Layout Data Review View Comments Formulas AA Share Z Insert AG Ev Conditional Formatting Format as Table 2 Cell Styles Paste OA = $ % 9688 Ideas Sort & Filter Format Sensitivity X Find & Select | m17 A H x C BI U B fox D B 37 38 Supporting calculations: Collections of accounts receivable! Sales on Account Percentage June April Sales May tales: Collected in June Collected in July June sales: Collected in July Collected in August July sales Payments for manufacturing costs: Costs on Percentage Payments Pald in June Incurred in May Incumed in June Total Pald in July Incurred in June Incumed in July Total Paid in August: Incurred in July Incurred in August Total 71 2. [Key essay answer here] Pr. 217)-4B +. Ready E C - + 100% AutoSave FFA SUHE: WRD FinMan 14e_PR 21(7)-4B Home Insert Draw Page Layout Data Review View Share Comments Formulas AA A Insert Ag O .. Z Ev Conditional Formatting Format as Table Cell Styles 5 Deinde v 29.0 Y = $ % - Ideas Sort & Filter Format Sensitivity X Find & Select Paste M17 A B IU B for v August $ 20,000 Mercury Shoes Inc. Cash Budget For the Three Months Ending August 31 June July Estimated cash receipts frorn: Cash sales $ 18,000 3 18,500 Collections from accounts receivable Total cash receipts Estimated cash payments for Manufacturing costs Selling and administrative expenses Capilal expenditures Other purposes: Income tax Dividends Tolal cash payments Cash increase (decrease) Cash balance al beginning of month Cash balance al end of month Minimum cash balance Excess (deficiency) Supporting calculations: Collections of accounts receivable: July April sales May sales: Collected in June Collected in July June sales: Collected in July Collected in August July sales 12 Pr. 217)-4B + Ready E C - + 100% AutoSave FFA SUHE: WRD FinMan 14e_PR 21(7)-4B Home Insert Draw Page Layout Data Review View Comments Formulas AA Share Z Insert AG Ev Conditional Formatting Format as Table 2 Cell Styles Paste OA = $ % 9688 Ideas Sort & Filter Format Sensitivity X Find & Select | m17 A H x C BI U B fox D B 37 38 Supporting calculations: Collections of accounts receivable! Sales on Account Percentage June April Sales May tales: Collected in June Collected in July June sales: Collected in July Collected in August July sales Payments for manufacturing costs: Costs on Percentage Payments Pald in June Incurred in May Incumed in June Total Pald in July Incurred in June Incumed in July Total Paid in August: Incurred in July Incurred in August Total 71 2. [Key essay answer here] Pr. 217)-4B +. Ready E C - + 100%
