Cash Budget The controller of Dash Shoes Inc. instructs you to prepare a monthly
ID: 2721478 • 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: March April May Sales $106,000 $134,000 $179,000 Manufacturing costs 45,000 58,000 64,000 Selling and administrative expenses 31,000 36,000 39,000 Capital expenditures _ _ 43,000 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 $9,000 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 $40,000, marketable securities of $57,000, and accounts receivable of $127,000 ($93,000 from February sales and $34,000 from January sales). Sales on account for January and February were $85,000 and $93,000, respectively. Current liabilities as of March 1 include a $53,000, 12%, 90-day note payable due May 20 and $9,000 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 $3,200 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 $9,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $31,000. 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.
Explanation / Answer
Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31, 2014
Accounts Recivable
*March
Jan Sales = 85,000*40%= $34,000
Feb Sales = $93,000*60% = $55,800
Total for March = $89,800
April
Feb Sales = $93,000*40% = 37,200
March Sales = $106,000*60% = $63,600
Total April Sales = $100,800
May
March sales = 106,000*40% = 42,400
April Sales = 134,000*60% = 80,400
Total May Sales = 122,800
Manufacturing cost
March
Payment of A/P, beginning of month balance $9,000
Paymnet of current month's cost [45,000-9,000]*75% = $27,000
Total March = $36,000
April
[45,000-9,000]*25% = 9,000
[58,000-9,000]*75% =36,750
Total = $45,750
May
[58,000-9,000]*25% = 12,000
[64,000-9,000]*75%= 41,250
Total MAy = $53,250
2.
Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31, 2014
March April MAy Estimated cash receipts from: Cash sales (15%) 15,900 20,100 26,850 Collection of Accounts Receivable 89,800* 100,800* 122,800* Dividends 3,200 3,200 3,200 Total cash receipts $108,900 $124,100 $152,850 Estimated cash payments for: Manufacturing costs 36,000 45,750 53,250 Selling and administrative expenses 31,000 36,000 39,000 Capital Expenditures - - 43,000 Other purposes: Note payable (including interest) 54,590 Income tax 16,000 Dividends 9,000 Total cash Payments $67,000 $97,750 $198,840 Cash increase or (decrease) 41,900 26,350 -45,990 Cash balance at beginning of month 40,000 81,900 108,250 Cash balance at end of month 81,900 108,250 103,400 Minimum cash balance 31,000 31,000 31,000 Excess or (deficiency) $50,900 $77,250 $31,260Accounts Recivable
*March
Jan Sales = 85,000*40%= $34,000
Feb Sales = $93,000*60% = $55,800
Total for March = $89,800
April
Feb Sales = $93,000*40% = 37,200
March Sales = $106,000*60% = $63,600
Total April Sales = $100,800
May
March sales = 106,000*40% = 42,400
April Sales = 134,000*60% = 80,400
Total May Sales = 122,800
Manufacturing cost
March
Payment of A/P, beginning of month balance $9,000
Paymnet of current month's cost [45,000-9,000]*75% = $27,000
Total March = $36,000
April
[45,000-9,000]*25% = 9,000
[58,000-9,000]*75% =36,750
Total = $45,750
May
[58,000-9,000]*25% = 12,000
[64,000-9,000]*75%= 41,250
Total MAy = $53,250
2.
The budget indicates that the minimum cash balance will not be maintained in May. This is due to the capital expenditures requiring significant cash outflows during this month. This situation can be corrected by borrowing and/or by the sale of the marketable securities, if they are held for such purposes. At the end of March and April, the cash balance will exceed the minimum desired balance, and the excess could be considered for temporary investment.