Assignment:
1. Prepare a monthly cash budget and supporting schedules for August, September, and October.
2. On the basis of the cash budget prepared in (1), what recommendation should be made to the controller?
The controller of Butler Boat Company instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
August September October
Sales $590,000 $650,000 $750,000
Manufacturing Costs 300,000 340,000 390,000
Selling and administrative expenses 150,000 170,000 200,000
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 full in the month following the sale and the remainder the following month. Depreciation, insurance, and property tax expense represent $30,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in July, and the annual property taxes are paid in November. Of the remainder of the manufacturing cost, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.
Current assets of the August 1 include cash of $55,000, marketable securities of $85,000, and accounts receivable of $594,000 ($442,000 from July sales and $152,000 from June sales.) Current liabilities as of August 1 include a $100,000, 10 %, 90-day note payable due October 20 and $60,000 of accounts payable incurred in July for manufacturing cost. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $1,500 in dividends will be received in August. An estimated income tax payment of $42,000 will be made in September. Butler's regular quarterly dividends of 15,000 is expected to be declared in September and paid in October. Management desires to maintain a minimum cash balance of $45,000.