Assignment
The controller of Santa Fe Housewares Inc. 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 $630,000 $715,000 $845,000
Manufacturing costs 350,000 360,000 410,000
Selling and Admin expenses 170,000 205,000 235,000
Capital expenditures 150,000
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in full in the month following the sale and the remainder the following month. Depreciation, insurance and property tax expenses represent $25,000 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 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 August 1 include cash of $50,000 marketable securities of $85,000, and accounts receivable of $635,000 ($500,000 from July sales and $135,000 from June sales). Sales on account for June and July were $450,000 and $500,000, respectively. Current liabilities as of August 1 include $100,000, 15%, 90-day note payable due October 20 and $65,000 of accounts payable incurred in July for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $1,800 in dividends will be received in August. An estimated income tax payment of $39,000 will be made in September. Santa Fe's regular quarterly dividend of $12,000 is expected to be declared in September and paid in October. Management desires to maintain a minimum cash balance of $40,000.