The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget
ID: 2473810 • 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:
March
April
May
Sales
$88,000
$108,000
$146,000
Manufacturing costs
37,000
46,000
53,000
Selling and administrative expenses
26,000
29,000
32,000
Capital expenditures
_
_
35,000
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 $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 $33,000, marketable securities of $48,000, and accounts receivable of $101,500 ($77,000 from February sales and $24,500 from January sales). Sales on account for January and February were $70,000 and $77,000, respectively. Current liabilities as of March 1 include a $44,000, 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 $2,600 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 $26,000.
Required:
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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.
Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31, 2014
March
April
May
Estimated cash receipts from:
Cash sales
$
$
$
Collection of accounts receivable
Dividends
Total cash receipts
$
$
$
Estimated cash payments for:
Manufacturing costs
$
$
$
Selling and administrative expenses
Capital expenditures
Other purposes:
Note payable (including interest)
Income tax
Dividends
Total cash payments
$
$
$
Cash increase or (decrease)
$
$
$
Cash balance at beginning of month
Cash balance at end of month
$
$
$
Minimum cash balance
Excess or (deficiency)
$
$
$
2. The budget indicates that the minimum cash balance Selectwillwill notCorrect 1 of Item 2 be maintained in May. This situation can be corrected by SelectinvestingborrowingCorrect 2 of Item 2 and/or by the SelectpurchasesaleCorrect 3 of Item 2 of the marketable securities, if they are held for such purposes. At the end of March and April, the cash balance will Selectexceedbe short ofCorrect 4 of Item 2 the minimum desired balance.
March
April
May
Sales
$88,000
$108,000
$146,000
Manufacturing costs
37,000
46,000
53,000
Selling and administrative expenses
26,000
29,000
32,000
Capital expenditures
_
_
35,000
Explanation / Answer
Ans 1 Budgeted Cash Receipt March April May Total Sales in value 88000 108000 146000 342000 Acc. Receivable In In Cash Sale 13200 16200 21900 51300 Credit Sales 74800 91800 124100 290700 For January sales 24500 24500 For February sales 50050 26950 77000 Feb mar April For March sales 48620 26180 74800 77000 50050 26950 For April sales 59670 59670 For may sales 0 0 0 Collection of accounts receivable 74550 75570 85850 235970 Cash Payments Maufacturing Cost 37000 46000 53000 136000 Less: depreciation, insrance, property tax 8000 8000 8000 24000 Manufacturing cost to be paid 29000 38000 45000 112000 85% in same month 24650 32300 38250 95200 15% in next month 8000 4350 5700 18050 Total 32650 36650 43950 113250 Selling & Administrative Expenses 26000 29000 32000 87000 0 Dash Shoes Inc. Cash Budget For the Three Months Ending May 31, 2014 March April May Total Estimated cash receipts from: Cash sales 13200 16200 21900 51300 Collection of accounts receivable 74550 75570 85850 235970 Dividends 2600 Total cash receipts $90,350 $91,770 $107,750 $287,270 Estimated cash payments for: Manufacturing costs 32650 36650 43950 113250 Selling and administrative expenses $26,000 $29,000 $32,000 $87,000 Capital expenditures $35,000 $35,000 Other purposes: $0 Note payable (including interest) $45,320 $45,320 Income tax $13,000 $13,000 Dividends 8000 $8,000 Total cash payments 58650 78650 164270 $301,570 Cash increase or (decrease) $31,700 $13,120 ($56,520) ($11,700) Cash balance at beginning of month 33000 $64,700 77820 $33,000 Cash balance at end of month $64,700 $77,820 $21,300 $21,300 Minimum cash balance 26000 26000 26000 26000 Excess or (deficiency) $38,700 $51,820 ($4,700) ($4,700) Ans 2 The minimum cash balance `is achieved in April and March Minimum cash balance exceeds $51820 in April and $38700 in March But it is`not achieved in May Deficit ($4,700) So marketabel securities to be sold 4700
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