The controller of Fleet 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 full in the month following the sale and the remainder the following month. Depreciation, insurance, and property tax expense represent $ 10,000 of the estimated monthly manufacturing costs. The annual insurance premium paid is 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 includes cash of $ 48,000, marketable securities of $ 65,000, and accounts receivable of $ 168,000 ($124,000 from May sales and $ 44,000 from April sales). Sales on account in April and May were $ 110,000 and 124,000 respectively. Current liabilities as of June 1 includes a $ 65,000 , 8%, 90-day note payable due August 20 and $8,000 of account payable incurred in May for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $ 4,000 in dividends will be received in June. An estimate income tax payment of $18,000 will be made in July. Fleet shoes’ regular quarterly dividend of $8,000 is expected to be declared in July and paid in August. Management desires to maintain a minimum cash balance of $ 45,000

Instruction

1. Prepare a monthly cash budget and support schedules for June, July, and August 2012.

2. On the basis of the cash budget prepare in part (1), what recommendation should be made to the controller?

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July August June Sales Manufacturing costs. Selling and administrative expenses Capital expenditures $240,000 $140,000 $176,000 94,000 45,000 55,000 60,000 35,000 75,000 40,000 ....... .....