Cash budget The company expects to sell about 10% of its merchandise for cash. O
ID: 2532080 • Letter: C
Question
Cash budget
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
Prepare a monthly cash budget and supporting schedules for June, July, and August.
Answer
Check Figure: August deficiency, $9,000
Explanation / Answer
2.
As the company has cash surplus in june and July, short term investments for 1 or 2 months can be looked into thereby reducing the cash deficieny in the month of August.
MERCURY SHOES INC. Sales Budget June July August Total Budgeted Sales 160000 185000 200000 545000 Cash Sales 16000 18500 20000 54500 Credit Sales 144000 166500 180000 490500 Schedule of cash collections June July August Total Cash sales 16000 18500 20000 54500 Credit sales: April Sales 48000 48000 May Sales 90000 60000 150000 June Sales 86400 57600 144000 July Sales 99900 99900 Total Collections 154000 164900 177500 496400 Schedule of disbursement for manufacturing costs June July August Total Manufacturing costs 66000 82000 105000 253000 Depreciation etc. 12000 12000 12000 36000 Balance 54000 70000 93000 217000 Payment schedule 0 May expenses 13000 13000 June expenses 43200 10800 54000 July Expenses 56000 14000 70000 August Expenses 74400 74400 Total Payments 56200 66800 88400 211400 Selling and admn. Expenses June July August Total Monthly expenses 40000 46000 51000 137000 Cash Budget June July August Total Beginning cash balance 42000 99800 127900 42000 Collections from sales 154000 164900 177500 496400 Total cash available 196000 264700 305400 538400 Cash disbursements: For manufacturing costs 56200 66800 88400 211400 For selling and admn. expenses 40000 46000 51000 137000 For income tax 24000 24000 For capital expenditure 120000 120000 For dividend 15000 15000 Total disbursements 96200 136800 274400 507400 Cash surplus / (deficit) 99800 127900 31000 31000 Minimum cash balance 40000 40000 40000 40000 Excess / (Shortage) 59800 87900 -9000 -9000 Financing: Borrowing / (repayment) 9000 9000 Interest 0 Total Finance 0 0 9000 9000 Ending Cash Balance 99800 127900 40000 40000Related Questions
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