Cash Budget The controller of Sonoma Housewares Inc. instructs you toprepare a monthly cash budget for the next three months. You arepresented with the following budget information: | May | June | July | | Sales | $95,000 | | $122,000 | | $155,000 | | | Manufacturing costs | 40,000 | | 52,000 | | 56,000 | | | Selling and administrative expenses | 28,000 | | 33,000 | | 34,000 | | | Capital expenditures | _ | | _ | | 37,000 | |
The company expects to sell about 12% of its merchandise forcash. Of sales on account, 65% are expected to be collected in themonth following the sale and the remainder the following month(second month following sale). Depreciation, insurance, andproperty tax expense represent $6,000 of the estimated monthlymanufacturing costs. The annual insurance premium is paid inSeptember, and the annual property taxes are paid in November. Ofthe remainder of the manufacturing costs, 85% are expected to bepaid in the month in which they are incurred and the balance in thefollowing month. Current assets as of May 1 include cash of $36,000, marketablesecurities of $51,000, and accounts receivable of $109,600 ($83,000from April sales and $26,600 from March sales). Sales on accountfor March and April were $76,000 and $83,000, respectively. Currentliabilities as of May 1 include $15,000 of accounts payableincurred in April for manufacturing costs. All selling andadministrative expenses are paid in cash in the period they areincurred. An estimated income tax payment of $15,000 will be madein June. Sonoma’s regular quarterly dividend of $6,000 is expectedto be declared in June and paid in July. Management wants tomaintain a minimum cash balance of $28,000. Required: 1. Prepare a monthly cash budget and supportingschedules for May, June, and July. Input all amounts as positivevalues except overall cash decrease and deficiency which should beindicated with a minus sign. | Sonoma Housewares Inc. | | Cash Budget | | For the Three Months Ending July 31 | | May | June | July | | Estimated cash receipts from: | | | | | Cash sales | $ | $ | $ | | Collection of accounts receivable | | | | | Total cash receipts | $ | $ | $ | | Estimated cash payments for: | | | | | Manufacturing costs | $ | $ | $ | | Selling and administrative expenses | | | | | Capital expenditures | | | | | Other purposes: | | | | | Income tax | | | | | Dividends | | | | | Total cash payments | $ | $ | $ | | Cash increase or (decrease) | $ | $ | $ | | Cash balance at beginning of month | | | | | Cash balance at end of month | $ | $ | $ | | Minimum cash balance | | | | | Excess (deficiency) | $ | $ | $ |
2. The budget indicates that the minimum cashbalance be maintained in July. This situation canbe corrected by and/or by the ofthe marketable securities, if they are held for such purposes. Atthe end of May and June, the cash balance will theminimum desired balance. | | | |
