The controller of Example Inc. asks you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

                                                                                        January            February        March

Sales                                                                              $450,000          $600,000       $600,000

Manufacturing Costs                                                   260,000              330,000         420,000

Selling & Administrative expenses                            100,000              140,000         150,000

Capital Expenditures                                                               0                          0            45,000

The company expects to sell about 20% of its merchandise for cash.  Of sales on account, 75% 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 $40,000 of the estimated monthly manufacturing costs.  The annual insurance premium is paid in June, and the annual property taxes are paid in October.  Of the remainder of the manufacturing costs, 90% are expected to be paid in the month in which they are incurred and the balance in the following month.  All sales and administrative expenses are paid in the month incurred. 

Current assets as of January 1 include cash of $45,000, marketable securities of $65,000, and accounts receivable of $290,000 ($240,000 from December sales and $50,000 from November sales.)  Sales on account in November and December were $200,000 and $240,000, respectively.  Current liabilities as of January 1 include a $50,000, 8%, 90-day note payable due to March 20 and $18,000 of accounts payable incurred in December for manufacturing costs.  All selling and administrative expenses are paid in cash in the period they are incurred.  It is expected that $20,000 in dividends will be received in January.  An estimated income tax payment of $15,000 will be made in February.  The company's regular quarterly dividend of $5,000 is expected to be declared in February and paid in March.  Management desires to maintain a minimum cash balance of $35,000.

1.  Prepare a monthly cash budget and supporting schedules for January, February, and March. 

2.  On the basis of the cash budget prepared in part 1, what recommendations should be made to the controller?

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Status NEW Posted 22 Dec 2017 03:12 PM My Price 10.00

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