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:

Question Content Area
1. Prepare a monthly cash budget and supporting schedules for June, July, and August.

The preparation of Mercury Shoes Inc.'s monthly Cash Budget and supporting schedules for June, July, and August is as follows:

                                                 June         July         August

Beginning balance             $42,000     $86,000    $114,100

Cash collections               $154,000    $164,900   $177,500

Total cash available         $182,200   $250,900  $291,600

Manufacturing costs        $56,200     $66,800    $88,400

Selling and

administrative expenses  40,000       46,000       51,000

Capital expenditures                 _                 _      120,000

Income tax                                            24,000

Dividends                                                                15,000

Total payments              $96,200    $136,800  $274,400

Ending cash balance    $86,000      $114,100     $17,200

Minimum cash balance  40,000        40,000      40,000

Excess (shortfall) cash $46,000       $74,100   ($22,800)

                                April          May            June          July         August

Sales                                                       $160,000   $185,000  $200,000

Cash sales                                                $16,000     $18,500    $20,000

Credit Sales       $120,000  $150,000  $144,000   $166,500   $180,000

Cash sales            $12,000    $15,000     $16,000    $18,500    $20,000

Credit sales;

60% month ffg sales                               $90,000   $86,400    $99,900

40% second month                                   48,000     60,000      57,600

Total cash collections                         $154,000 $164,900   $177,500

                                April          May           June         July         August

Beginning balance               $13,000

Total manufacturing costs                    $66,000   $82,000   $105,000

Depreciation, insurance,

and property tax expense                       12,000      12,000       12,000

Other manufacturing costs                  $54,000   $70,000    $93,000

Cash payment for manufacturing costs:

80% in month incurred                        $43,200   $56,000    $74,400

20% in following month                         13,000    $10,800     $14,000

Total payments                                  $56,200   $66,800    $88,400

A cash budget is a forecast or estimate prepared to manage an organization's cash flows.

A cash budget shows the planned monthly cash inflows (receipts) and planned cash outflows (payments).

Thus, the monthly cash budget of Mercury Shoes Inc. is prepared as above with the supporting schedules.

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