Cash Budget The controller of Dash Shoes Inc. instructs you to prepare a monthly
ID: 2486634 • 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 10% of its merchandise for cash. Of sales on account, 70% 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 $10,000 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 $42,000, marketable securities of $59,000, and accounts receivable of $122,400 ($96,000 from February sales and $26,400 from January sales). Sales on account for January and February were $88,000 and $96,000, respectively. Current liabilities as of March 1 include a $55,000, 12%, 90-day note payable due May 20 and $10,000 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 $3,300 in dividends will be received in March. An estimated income tax payment of $16,000 will be made in April. Dash Shoes' regular quarterly dividend of $10,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $33,000.
Required:
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.
Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31, 2014
March
April
May
Estimated cash receipts from:
Cash sales
$
$
$
Collection of accounts receivable
Dividends
Total cash receipts
$
$
$
Estimated cash payments for:
Manufacturing costs
$
$
$
Selling and administrative expenses
Capital expenditures
Other purposes:
Note payable (including interest)
Income tax
Dividends
Total cash payments
$
$
$
Cash increase or (decrease)
$
$
$
Cash balance at beginning of month
Cash balance at end of month
$
$
$
Minimum cash balance
Excess or (deficiency)
$
$
$
March April May Sales $110,000 $132,000 $184,000 Manufacturing costs 46,000 57,000 66,000 Selling and administrative expenses 32,000 36,000 40,000 Capital expenditures _ _ 44,000Explanation / Answer
Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31, 2014
Accounts Recivable
*March
Jan Sales = 88,000*30%= $26,400
Feb Sales = $96,000*70% = $67,200
Total for March = $93,600
April
Feb Sales = $96,000*30% = 28,800
March Sales = $110,000*70% = $77,000
Total April Sales = $105,800
May
March sales = 110,000*30% = 33,000
April Sales = 132,000*70% = 92,400
Total May Sales = 125,400
Manufacturing cost
March
Payment of A/P, beginning of month balance $10,000
Paymnet of current month's cost [46,000-10,000]*75% = $27,000
Total March = $37,000
April
[46,000-10,000]*25% = 9,000
[57,000-10,000]*75% = 35,250
Total = $44,250
May
[57,000-10,000]*25% = 11,750
[66,000-10,000]*75%= 42,000
Total MAy = $53,750
Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31, 2014
March April MAy Estimated cash receipts from: Cash sales (10%) 11,000 13,200 18,400 Collection of Accounts Receivable 93,600* 105,800* 125,400* Dividends 3,300 3,300 3,300 Total cash receipts $107,900 $122,300 $147,100 Estimated cash payments for: Manufacturing costs 37,000 44,250 53,750 Selling and administrative expenses 32,000 36,000 40,000 Capital Expenditures - - 44,000 Other purposes: Note payable (including interest) 56,650 Income tax 16,000 Dividends 10,000 Total cash Payments $69,000 $96,250 $150,650 Cash increase or (decrease) 38,900 26,050 -3,550 Cash balance at beginning of month 42,000 80,900 106,950 Cash balance at end of month 80,900 106,950 103,400 Minimum cash balance 33,000 33,000 33,000 Excess or (deficiency) $47,900 $73,950 $70,400Accounts Recivable
*March
Jan Sales = 88,000*30%= $26,400
Feb Sales = $96,000*70% = $67,200
Total for March = $93,600
April
Feb Sales = $96,000*30% = 28,800
March Sales = $110,000*70% = $77,000
Total April Sales = $105,800
May
March sales = 110,000*30% = 33,000
April Sales = 132,000*70% = 92,400
Total May Sales = 125,400
Manufacturing cost
March
Payment of A/P, beginning of month balance $10,000
Paymnet of current month's cost [46,000-10,000]*75% = $27,000
Total March = $37,000
April
[46,000-10,000]*25% = 9,000
[57,000-10,000]*75% = 35,250
Total = $44,250
May
[57,000-10,000]*25% = 11,750
[66,000-10,000]*75%= 42,000
Total MAy = $53,750