Cash Budget The controller of Dash Shoes Inc. instructs you to prepare a monthly
ID: 2468093 • Letter: C
Question
Cash Budget
The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:
The company expects to sell about 15% of its merchandise for cash. Of sales on account, 65% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $7,000 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, 75% are expected to be paid in the month in which they are incurred and the balance in the following month.
Current assets as of March 1 include cash of $48,000, marketable securities of $68,000, and accounts receivable of $145,350 ($110,000 from February sales and $35,350 from January sales). Sales on account for January and February were $101,000 and $110,000, respectively. Current liabilities as of March 1 include a $63,000, 12%, 90-day note payable due May 20 and $7,000 of accounts payable incurred in February for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $3,800 in dividends will be received in March. An estimated income tax payment of $18,000 will be made in April. Dash Shoes' regular quarterly dividend of $7,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $37,000.
1. Prepare a monthly cash budget and supporting schedules for March, April, and May. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign. Assume 360 days per year for interest calculations.
March April May Sales $126,000 $152,000 $208,000 Manufacturing costs 53,000 65,000 75,000 Selling and administrative expenses 37,000 41,000 46,000 Capital expenditures _ _ 50,000Explanation / Answer
Monthly cash budget
March April May Opening cash balance 48,000 87,674 98,234 Cash Receipts Cash sales(15% of total monthly sales) 18,900 22,800 31,200 Collection of accounts receivable January sales 35,350 February sales 60,775 32,775 March sales 69,615 37,485 April sales 83,980 Dividend receipt 3,800 Total cash in hand 166,825 212,864 250,899 Cash Disbursements Manufacturing costs 41,500 55,000 65,500 Selling and Administrative expenses 37,000 41,000 46,000 Interest on note payable 651 630 651 Retirement of note payable 63,000 Captal expenditure 50,000 Dividend paid 7,000 Income tax paid 18,000 Short term loan from bank 18,252 Closing cash balance 87,674 98,234 37,000