Cash Budget The controller of Dash Shoes Inc. instructs you to prepare a monthly
ID: 2595379 • 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 12% 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 $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, 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 $34,000, marketable securities of $48,000, and accounts receivable of $99,300 ($78,000 from February sales and $21,300 from January sales). Sales on account for January and February were $71,000 and $78,000, respectively. Current liabilities as of March 1 include a $45,000, 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 $2,700 in dividends will be received in March. An estimated income tax payment of $13,000 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 $27,000.
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 $89,000 $110,000 $143,000 Manufacturing costs 37,000 47,000 51,000 Selling and administrative expenses 26,000 30,000 31,000 Capital expenditures _ _ 34,000Explanation / Answer
Dash Shoes Sales & Collection Budget Months March April May Sales 89000 110000 143000 Collections: Cash Sales (12%) 10680 13200 17160 In First Month Post Sales (70% of 88%) 75900 54824 67760 In Second Month Post Sales 23400 23496 Total Collections 86580 91424 108416 Dash Shoes Cash Disbursment Months March April May Manufacturing Cost 37000 47000 51000 Less: Dep,Insu and Tax 8000 8000 8000 Net Costs 29000 39000 43000 In the Month(75%) 21750 29250 32250 Balance (25%) in Next Month 8000 7250 9750 Total 29750 36500 42000 Dash Shoes Cash Budget Months March April May Collections 86580 91424 108416 Add: Dividend Income 2700 0 0 Total Cash Receipts 89280 91424 108416 Less: Cash Payments: Payment for M OH 29750 36500 42000 Selling & Admin Exp 26000 30000 31000 Income Tax 0 13000 0 Dividend 0 0 8000 Note Payable Inc Interest 46350 Capital Expense 0 0 34000 Total Cash Disbursements 55750 79500 161350 Increase/Decrease in Cash 33530 11924 -52934 Opening Cash Balance 34000 67530 79454 Closing Cash 67530 79454 26520 Excess/Deficiency 40530 52454 -480 Thanks