The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget

Question

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 $6,000 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, 80% 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 $43,000, marketable securities of $60,000, and accounts receivable of $129,500 ($98,000 from February sales and $31,500 from January sales). Sales on account for January and February were $90,000 and $98,000, respectively. Current liabilities as of March 1 include a $56,000, 12%, 90-day note payable due May 20 and $6,000 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 $3,400 in dividends will be received in March. An estimated income tax payment of $17,000 will be made in April. Dash Shoes' regular quarterly dividend of $6,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $34,000.

March April May Sales $112,000 $143,000 $186,000 Manufacturing costs 47,000 61,000 67,000 Selling and administrative expenses 32,000 39,000 41,000 Capital expenditures _ _ 45,000

Explanation / Answer

Answer:

Cash Budget

Particulars March April May Cash Receipts; From Cash Sales (15%) $ 16,800 $ 21,450 $ 27,900 From Credit Sales January $ 31,500 Nil Nil February $ 63,700 $ 34,300 Nil March Nil $ 61,880 $ 33,320 April Nil Nil $ 79,007.50 Dividend $ 3,400 Total Cash Receipts $ 115,400 $ 117,630 $ 140,227.50 Cash Payments; Manufacuring Costs Less insurance, depreciation and Property Tax February $ 6,000 Nil Nil March $ 32,800 $ 8,200 Nil April Nil $ 44,000 $ 11,000 May Nil Nil $ 48,800 Selling and Admin Expense $ 32,000 $ 39,000 $ 41,000 Income Tax Nil $ 17,000 Nil Dividend Nil Nil $ 6,000 Note Payable Nil Nil $ 56,000 Total Cash Payments $ 70,800 $ 108,200 $ 162,800 Opening Cash Balance $ 43,000 $ 87,600 $ 97,030 Add: Surplus of receipts over payments $ 44,600 $ 9,430 -$ 22572.50 Closing Cash Balance $ 87,600 $ 97,030 $ 74,457.50

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