Cash budget 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: July August $160,000 $185,000 $200,000 66,000 82,000 105,000 51,000 40,000 46,000 120,000 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. Sales Manufacturing costs Selling and administrative expenses Capital expenditures June 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. Required:
Cash budget 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: July August $160,000 $185,000 $200,000 66,000 82,000 105,000 51,000 40,000 46,000 120,000 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. Sales Manufacturing costs Selling and administrative expenses Capital expenditures June 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. Required:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Question
Transcribed Image Text:**Cash Budget**
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 desires to maintain a minimum cash balance of $40,000.
**Required:**
1. Prepare a monthly cash budget and supporting schedules for June, July, and August.
**Mercury Shoes Inc. Cash Budget For the Three Months Ending August 31**
_Line Item Description June July August_
Estimated cash receipts from:
Transcribed Image Text:### Cash Budget Template
**Estimated Cash Receipts:**
- Section for recording sources of cash receipts with amounts for June, July, and August.
**Total Cash Receipts:**
- Sum of estimated cash receipts.
**Less Estimated Cash Payments For:**
- Section for detailing estimated cash payments including specific categories and their amounts for each month.
**Other Purposes:**
- Area to specify additional cash payment purposes with amounts.
**Total Cash Payments:**
- Sum of all estimated cash payments for June, July, and August.
**Cash Balance at End of Month:**
- Calculation field for determining the cash balance remaining at the end of each month after all payments.
**Excess or (Deficiency):**
- Field to show the difference between total cash receipts and payments, indicating an excess or deficiency for each month.
---
**Budget Analysis Note:**
1. **Minimum Cash Balance**: The budget outlines whether the minimum cash balance will be maintained in August. Measures to correct this may include adjustments such as the sale of marketable securities.
2. At the end of June and July, the status of the cash balance concerning the minimum desired level is also highlighted, showing whether it meets or falls short of expectations.
This template is designed to help manage and forecast cash flow effectively over a three-month period.
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