The treasurer of Bradly Lawn Equipment Company instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: August September October Sales $310,000 $390,000 $366,000 Manufacturing costs 190,000 240,000 215,000 Operating expenses 56,000 71,000 65,000 Capital expenditures 24,000 The company expects to sell about 20% 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 taxes represent $20,000 of the estimated monthly manufacturing costs and $4,000 of the probable monthly operating expenses. The annual insurance premium is paid in July, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs and operating expenses, 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 comprise cash of $32,000, marketable securities of $40,000, and accounts receivable of $261,800 ($220,000 from July sales and $41,800 from June sales). Current liabilities as of August 1 comprise a $60,000, 12%, 60‑day note payable due September 20, $30,000 of accounts payable incurred in July for manufacturing costs, and accrued liabilities of $9,500 incurred in July for operating expenses. It is expected that $1 500 in dividends will be received in August. An estimated income tax payment of $21,000 will be made in September. Bradly's regular quarterly dividend of $10,000 is expected to be declared in September and paid in October. Management desires to maintain a minimum cash balance of $25,000. Instructions Prepare a monthly cash budget for August, September, and October. On the basis of the cash budget prepared in (1), what recommendation should be made to the treasurer?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
The treasurer of Bradly Lawn Equipment Company instructs you to prepare a monthly
August September October
Sales $310,000 $390,000 $366,000
Operating expenses 56,000 71,000 65,000
Capital expenditures 24,000
The company expects to sell about 20% 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 taxes represent $20,000 of the estimated monthly manufacturing costs and $4,000 of the probable monthly operating expenses. The annual insurance premium is paid in July, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs and operating expenses, 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 comprise cash of $32,000, marketable securities of $40,000, and
It is expected that $1 500 in dividends will be received in August. An estimated income tax payment of $21,000 will be made in September. Bradly's regular quarterly dividend of $10,000 is expected to be declared in September and paid in October. Management desires to maintain a minimum cash balance of $25,000.
Instructions
- Prepare a monthly cash budget for August, September, and October.
- On the basis of the cash budget prepared in (1), what recommendation should be made to the treasurer?
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