| August | September | October | |
| Sales |
630,000
|
715,000
|
845,000
|
| Manufacturing costs |
350,000
|
360,000
|
410,000
|
| Selling and administrative 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 in the following month. Depreciation, insurance, and property tax expense 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 a $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.
Instructions
- 1. Prepare a monthly cash budget and supporting schedules for August, September and October.
- 2. On the basis of the cash budget prepared in part (1), what recommendations should be made to the controller?
