The controller of Glendale Housewares Inc. instructs you to preparea monthly cas

Question

The controller of Glendale Housewares Inc. instructs you to preparea monthly cash budget for the next three months. You are presentedwith the following budget information:
_____________________________
                                                     August      September  October
Sales                                                       $630,000   $715,000       $845,000
ManufacturingCosts                                 350,000        360,000         410,000
Selling/AdministrativeExpenses                 170,000      205,000        235,000
CapitalExpenditures                                                                          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 inthe month following the sale and the remainder the following month.Depreciation, insurance, and property tax expense represent $25,000of the estimated monthly manufacturing costs. The annual insurancepremium is paid to July, and the annual property taxes are paid inNovember. Of the remainder of the manufacturing costs, 80% areexpected to be paid in the month in which they are incurred and thebalance in the following month.

Current assets as of August 1 include cash of $50,000, marketablesecurities of $85,000, and accounts receivable of $635,000($500,000 from July sales and $135,000 from June sales). Sales onaccount for June and July were $450,000 and $500,000, respectively.Current liabilities as of August 1 include $100,000, 15%, 90-daynote payable due October 20 and $65,000 of accounts payableincurred in July for manufacturing costs. All selling andadministrative expenses are paid in cash in the period they areincurred. It is expected that $1,800 in dividends will be receivedin August. An estimated income tax payment of $39,000 will be madein September. Glendale's regular quarterly dividend of $12,000 isexpected to be declared in September and paid in October.Management desires to maintain a minimum cash balance of$40,000.

Instruction
1. Prepare a monthly cash budget and supporting schedules forAugust, September, and October. ?

2. On the basis of the cash budget prepared in part (1), whatrecommendation should be made to the controller?

*The txtbook have stated a partial answer.... October deficiency,$64,500.

                                                     August      September  October
ManufacturingCosts                                 350,000        360,000         410,000
Selling/AdministrativeExpenses                 170,000      205,000        235,000

Explanation / Answer

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