Question

eBook Show Me How Calculator Printem 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 $125,000 $158,000 $210,000 Manufacturing costs 53,000 68,000 76,000 Selling and administrative expenses 36,000 43,000 46,000 Capital expenditures 50,000 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 59,000 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 $48.000,marketable securities of $68,000, and accounts receivable of $149,000 (5109,000 from February sales and $40,000 from January sales). Sales on account for January and February were $100,000 and 5109,000, respectively. Current liabilities as of March 1 include a $63,000, 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 $3,800 in dividends will be received in March. An estimated Income tax payment of $19,000 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 cal balance of 537,000 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, Previous Next Check My Work 1 more Check My Work uses remaining

Answer 1

1.

Cash Budget for the three months ending May 31,2016
	March(in $)	April(in $)	May (in $)
Estimated cash receipts from:
Cash sales (15% of monthly sales)	18750	23700	31500
Collection of accounts receivable	81400	107350	123080
Dividends	3800
Total cash receipts	103950	131050	154580
Estimated cash payments for:
Manufacturing costs	46400	56750	65800
Selling & administrative expenses	36000	43000	46000
Capital expenditure			50000
Other purposes:
Note payable (including interest)			64890
Income tax		19000
Dividend			9000
Total cash payments	82400	118750	235690
Cash increase (or decrease) (Cash receipts - cash payments)	21550	12300	-81110
Cash balance at the beginning of the month	48000	69550	81850
Cash balance at the end of the month	69550	81850	740
Minimum cash balance	37000	37000	37000
Excess (or deficiency)	32550	44850	-36260

Working notes:

a.

	January	February	March	April	May	June
Total sales			125000	158000	210000
cash sales(15%)			18750	23700	31500
credit sales (85%)	40000	109000	106250	134300	178500
60% collection in month following sale		24000	65400	63750	80580
40% collection in second month following sale			16000	43600	42500	25500
Total collection of accounts receivable in current month			81400	107350	123080

b.

Note payable	63000
Interest @ 12% for 90 days (assuming 360-day year)	1890
Total note payable (incl. int. ) in May	64890

c.

	March	April	May	June
Manufacturing expenses	53000	68000	76000
Less: Dep.,insurance & property tax expense	9000	9000	9000
Manufacturing exp. For the month	44000	59000	67000
85% man. Exp. To be paid in cash in current month	37400	50150	56950
15% man. Exp. To be paid in cash in next month (Note :Feb. accounts payable of $9000)	9000	6600	8850	10050
Total cash expense for manufacturing costs in current month	46400	56750	65800

2. The budget indicates that minimum cash balance of $ 37000 to be maintained in May. The situation can be corrected by incurring the capital expenditure partially or fully in credit, and/or by the sale of marketable securities, if they are held for such purpose. At the end of March and April, the cash balance will exceed the minimum desired balance.