[Richter2]

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:

March April May

Sales 70,000 84,000 92,000

Manufacturing cost 32,000 39,000 42,500

Selling and administrative expenses 12,000 18,000 21,000

Capital expenditures 20,000

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 expense represent $3,000 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 March 1 include cash of $10,000, marketable securities of $40,000, and accounts receivable of $75,600 ($60,000 from February sales and $15,600 from January sales).Sales on account for January and February were $52,000 and $60,000, respectively.

Current liabilities as of March 1 include s $12,000, 15%, 90-day note payable due May 20 and $4,000 of accounts payable incurred in February 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 March. An estimated income tax payment of $16,000 will be made in April. Santa Fe's regular quarterly dividend of $3,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $30,000.

Instructions:

1. Prepare a monthly cash budget and supporting schedules for March, April, and May
2. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?

[Richter2]

I should mention that I'm lost on this problem in my book. There is a ton of info and I'm quite sure where to start. If anyone can show me how to go about this, I'd really appreciate it.

[ArcSine]

The cash budget for a single month:
• Starts with the amount of cash as of the first day of the month
• Lists and adds the cash expected to be collected during that month
• Lists and deducts the cash expected to be paid out during that month
• Shows the amount of cash expected at the end of the month

Simplified example with made-up numbers:

10 Beginning cash
+5 Collections of from last month's sales (1/3 of last month's sales)
+11 Collections of current month's sales (2/3 of current month's sales)
-7 Payment of current month's administrative expenses
-8 Payment of last month's inventory purchases (purchased on account)
-------
11 Expected ending cash


That's the basic layout, although yours will involve more lines of cash receipts and expenditures each month, and will be arranged more neatly. You'll have to carefully consider all the information given in the problem to determine just what each month's cash receipts and cash expenditures will be.

Note that the ending cash for one month becomes the beginning cash for the next. Also note that if your expected ending cash in any given month is below your target amount, you'll have to borrow enough to bring your ending cash up to the target level.

You're given that the beginning cash for March is 10,000. You can take it from there. Post back if you're unsure of something, but you'll need to show your progress and efforts.