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 | $86,000 | | $90,000 | | $95,000 | |
| Manufacturing costs | 34,000 | | 39,000 | | 44,000 | |
| Selling and administrative expenses | 15,000 | | 16,000 | | 22,000 | |
| Capital expenditures | _ | | _ | | 80,000 | |
The company expects to sell about 10% of its merchandise forcash. Of sales on account, 70% 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 $3,500 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, 80% 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 $33,000, marketablesecurities of $40,000, and accounts receivable of $90,000 ($72,000from April sales and $18,000 from March sales). Sales on accountfor March and April were $60,000 and $72,000, respectively. Currentliabilities as of May 1 include $6,000 of accounts payable incurredin April for manufacturing costs. All selling and administrativeexpenses are paid in cash in the period they are incurred. Anestimated income tax payment of $14,000 will be made in June.Sonoma’s regular quarterly dividend of $5,000 is expected to bedeclared in June and paid in July. Management wants to maintain aminimum cash balance of $30,000.
Required:
1. Prepare a monthly cash budget and supportingschedules for May, June, and July 2016. Input all amounts aspositive values except overall cash decrease and deficiency whichshould be indicated 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 or (deficiency) | $ | $ | $ |
2. The budget indicates that the minimum cashbalance be maintained in July. This situation can be corrected byand/or by the of the marketable securities, if they are held forsuch purposes. At the end of May and June, the cash balance willthe minimum desired balance.
