Cash Budget The controller of Dash Shoes Inc. instructs you to prepare a monthly
ID: 2500196 • 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 budgetinformation:
The company expects to sell about 15% of its merchandise for cash. Of sales on account, 60% 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 $8,000 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, 85% 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 $38,000, marketable securities of $55,000, and accounts receivable of $120,400 ($88,000 from February sales and $32,400 from January sales). Sales on account for January and February were $81,000 and $88,000, respectively. Current liabilities as of March 1 include a $51,000, 12%, 90-day note payable due May 20 and $8,000 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 $3,000 in dividends will be received in March. An estimated income tax payment of $14,000 will be made in April. Dash Shoes' regular quarterly dividend of $8,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $30,000.
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.
March April May Sales $101,000 $119,000 $161,000 Manufacturing costs 42,000 51,000 58,000 Selling and administrative expenses 29,000 32,000 35,000 Capital expenditures _ _ 39,000Explanation / Answer
Dash Shoes Inc. (All values in $) Cash Budget for the Three Months Ending May 31, 2016 March April May Estimated Cash Receipts from : Cash Sales 15150 17850 24150 Collections of Accounts Receivable 85200 86710 82153 Dividends 3000 Total Cash Receipts 103350 104560 106303 Estimated Cash Payments for : Manufacturing Costs 36900 41650 48950 Selling and Administrative Expenses 29000 32000 35000 Capital Expenditures 39000 Other Purposes : Note Payable (including interest) 56440 Income Tax 14000 Dividends 8000 Total Cash Payments 79900 138090 122950 Cash Increase or (Decrease) 23450 -33530 -16648 Cash Balance at beginning of the month 38000 61450 27920 Cash Balance at end of the month 61450 27920 11273 Minimum Cash Balance required 30000 30000 30000 Excess or (Deficiency) 31450 -2080 -18728