Cash Budget

Problem 1. Mercury Shoes Inc.

The 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: June July
August Sales $160,000 $185,000 $200,000 Manufacturing costs 66,000 82,000 105,000
Selling and administrative expenses 40,000 46,000 51,000 Capital expenditures 120,000
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 wants to maintain a minimum cash balance of $40,000.

Required: 1. Prepare a monthly cash budget and supporting schedules for June, July, and
August. Enter all amounts as positive numbers except for Cash (decrease) and (deficiency).
Use the minus sign to indicate an overall cash decrease and deficiency.

Mercury Shoes Inc. Cash Budget For the Three Months Ending August 31 June July
Estimated cash receipts from: Cash sales August Collection of accounts receivable Total
cash receipts Estimated cash payments for: Manufacturing costs Selling and administrative
expenses Capital expenditures Other purposes: Income tax Dividends A Total cash
payments A 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 cash balance be maintained in August. This
situation can be corrected by and/or by the of the marketable securities, if they are held for
such purposes. At the end of June and July the cash balance will the minimum desired
balance.
Solutions:

1.
SOLUTIONS:

2.

The budget indicates that the minimum cash balance will not be maintained in November.
This situation can be corrected by borrowing or by the Sale of the marketable securities, if
they are held for such purposes. At the end of September and October, the cash balance
will exceeds the minimum desired balance.
PROBLEM 2. Sonoma Housewares Inc. 
Cash Budget

The controller of Sonoma Housewares Inc. instructs you to prepare a monthly cash budget
for the next three months. You are presented 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
15,000 16,000 22,000
expenses
Capital expenditures _ _ 80,000
The company expects to sell about 10% of its merchandise for cash. Of sales on account,
70% are expected to be collected in the month following the sale and the remainder the
following month (second month following sale). Depreciation, insurance, and property tax
expense represent $3,500 of the estimated monthly manufacturing costs. The annual
insurance premium is paid in September, 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 May 1 include cash of $33,000, marketable securities of $40,000, and
accounts receivable of $90,000 ($72,000 from April sales and $18,000 from March sales).
Sales on account for March and April were $60,000 and $72,000, respectively. Current
liabilities as of May 1 include $6,000 of accounts payable incurred in April for manufacturing
costs. All selling and administrative expenses are paid in cash in the period they are
incurred. An estimated income tax payment of $14,000 will be made in June. Sonoma’s
regular quarterly dividend of $5,000 is expected to be declared in June and paid in July.
Management wants to maintain a minimum cash balance of $30,000.
Required:

1. Prepare a monthly cash budget and supporting schedules for May, June, and July
2016. Input all amounts as positive values except overall cash decrease and
deficiency which should be indicated with a minus sign.

Sonoma Housewares Inc.

Cash Budget
For the Three Months Ending July 31
Ma
June July
y
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 cash balance   be maintained in July. This
situation can be corrected by   and/or by the   of the marketable securities, if they are held
for such purposes. At the end of May and June, the cash balance will   the minimum desired
balance.