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PR 21-4A Cash Budgets-The controller of Santa Fe Housewares Inc.

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Question;PR 21-4A Cash BudgetsThe controller of Santa Fe Housewares Inc. instructs you to prepare a monthly cash bud-get for the next three months. You are presented with the following budget information:March April MaySales..................................................... $70,000 $84,000 $92,000Manufacturing costs....................................... 32,000 39,000 42,500Selling and administrative expenses........................ 12,000 18,000 21,000Capital expenditures...................................... 20,000The company expects to sell about 10% of its merchandise for cash. Of sales onaccount, 70% are expected to be collected in full in the month following the sale and theremainder the following month. Depreciation, insurance, and property tax expense repre-sent $3,000 of the estimated monthly manufacturing costs. The annual insurance premiumis paid in July, and the annual property taxes are paid in November. Of the remainderof the manufacturing costs, 80% are expected to be paid in the month in which they areincurred 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 Janu-ary sales). Sales on account for January and February were $52,000 and $60,000, respec-tively. Current liabilities as of March 1 include a $12,000, 15%, 90-day note payable dueMay 20 and $4,000 of accounts payable incurred in February for manufacturing costs. Allselling and administrative expenses are paid in cash in the period they are incurred. Itis expected that $1,800 in dividends will be received in March. An estimated income taxpayment of $16,000 will be made in April. Santa Fe?s regular quarterly dividend of $3,000is expected to be declared in April and paid in May. Management desires to maintain aminimum cash balance of $30,000.Instructions1. 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 recommendationshould be made to the controller?

 

Paper#38076 | Written in 18-Jul-2015

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