The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget
ID: 2449817 • Letter: T
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, 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 $7,000 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 $40,000, marketable securities of $56,000, and accounts receivable of $115,900 ($91,000 from February sales and $24,900 from January sales). Sales on account for January and February were $83,000 and $91,000, respectively. Current liabilities as of March 1 include a $52,000, 12%, 90-day note payable due May 20 and $7,000 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 $3,100 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 $7,000 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.
March April May Sales $104,000 $130,000 $164,000 Manufacturing costs 44,000 56,000 59,000 Selling and administrative expenses 30,000 35,000 36,000 Capital expenditures _ _ 39,000Explanation / Answer
Cash budget For the three month ending May 31,2016 Estimated cash received from March April May Cash sales $ 15,600 $ 19,500 $ 24,600 Collection from account receivable $ 99,841 $ 88,859 $ 106,600 Dividend $ 3,100 Total Cash receipts $ 118,541 $ 108,359 $ 131,200 Estimated cash payments for: Manufacturing costs $ (36,600) $ (46,600) $ (51,400) Selling and administrative expenses $ (30,000) $ (35,000) $ (36,000) Capital expenditures $ (39,000) Other purposes: Note payable (including interest) $ (53,560) Income Tax $ (16,000) Dividend $ (7,000) Total Cash Payable $ (66,600) $ (97,600) $ (186,960) Cash Increase or Decrease $ 51,941 $ 10,759 $ (55,760) Cash Balance beginning of the month $ 40,000 $ 91,941 $ 102,700 Cash Balance at the end $ 91,941 $ 102,700 $ 46,940 Minimum Cash Balance $ (31,000) $ (31,000) $ (31,000) Excess or deficiency $ 60,941 $ 71,700 $ 15,940 WN-1 Amount Actual Particulars January Februar March April May June Sales 24900 91000 104000 130000 164000 15% Cash Sales 15600 19500 24600 70% next month collection 74941.17647 72800 91000 114800 15% Second month collection 24900 16059 15600 Total Cash collected 99841.17647 88858.82 106600 Manufacturing Expenses March April May Manufacturing Expenses 44000 56000 59000 Less Depreciation, Insurance, property tax -7000 -7000 -7000 37000 49000 52000 80% paid in that month only 29600 39200 41600 20 % Paid in flowing month 7400 9800 February expenses 7000 36600 46600 51400 Account Payable 52000 Notes payble 1560 53560
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