The controller of Dash Shoes Inc. instructs you to prepare a monthly cash budget
ID: 2376258 • 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
Apr
May
Sales
$91,000
$114,000
$144,000
Manufacturing costs
38,000
49,000
52,000
Selling and administrative expenses
26,000
31,000
32,000
Capital expenditures
_
_
35,000
The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in full in the month following the sale and the remainder the following month. 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 $35,000, marketable securities of $49,000, and accounts receivable of $109,200 ($80,000 from February sales and $29,200 from January sales). Sales on account for January and February were $73,000 and $80,000, respectively. Current liabilities as of March 1 include a $46,000, 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 $2,700 in dividends will be received in March. An estimated income tax payment of $14,000 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 $27,000.
Questions 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
Estimated cash from:
Cash Sales
Collection of accounts receivable
Dividends
Total cash receipts
Estimated Cash payment for:
Manufacturing costs
selling and administrative expenses
Other purposes:
Note payable (including interest)
Income tax
dividends
Total cash payments
Cash increae or (decrease)
Cash balance at beginning of month
Minimum cash balance
Excess or (deficiency)
Question 2:
On the basis of the cash budget prepared in Part 1, what recommendation should be made to the controller?
March
Apr
May
Sales
$91,000
$114,000
$144,000
Manufacturing costs
38,000
49,000
52,000
Selling and administrative expenses
26,000
31,000
32,000
Capital expenditures
_
_
35,000
Explanation / Answer
Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31, 2012
....... .......... .......... .......... ........... ...... ...March ..... ...... April ...... .....May
Estimated cash receipts from:
Cash sales (12%) ........... ....... ......... $15,120 ....... .$18,120 .......$24,000
Collection of accounts receivable ....106,400*........ 110,528**......124,080***
Dividends ....... ........ .......... ........ .......... 3,800
Total cash receipts ....... ........ ....... ..$125,320 ........$128,648 ....$148,080
Estimated cash payments for:
Manufacturing costs ....... ........ ........ ...46,550....... .....53,200......60,950
Selling and administrative expenses ..37,000 ..... ........41,000 .......44,000
Capital expenditures ....... .......... ......... .......... ......... ........... ......... ....48,000
Other purposes:
Note payable (including interest) ....... ......... ......... ......... ........... ......65,160
Income tax ........ .......... .......... .......... .......... ......... ....... .18,000
Dividends ....... .......... ......... .......... ......... ........... ......... ........ ........ ..10,000
Total cash payments ........... .......... .....$83,550 ....... ..$112,200...$228,110
Cash increase or (decrease) ........ ......$41,770 ........ ....$16,448 ...($80,030)
Cash balance at beginning of month ....48,000 ......... ......89,770.....106,218
Cash balance at end of month ....... ......89,770 ......... ....106,218 .......26,188
Minimum cash balance .......... ....... ........37,000 ........ ......37,000 ...... .37,000
Excess or (deficiency) ........ .......... .......$52,770 ......... ...$69,218 ....$(10,812)
*March:
Jan ($101,000 x 40%) $40,400
Feb (110,000 x 60%) 66,000
Total $106,400
**April:
Feb (110,000 x 40%) $44,000
March (126,000 x 88% x 60%) 66,528
Total $110,528
***May:
March ($126,000 x 88% x 40%) $44,352
April ($151,000 x 88% x 40%) 79,728
Total 124,080
March:
Payment of A/P, beginning of month balance $10,000
Payment of current month's cost [(53,000 - 10,000) x 85%] $36,550
Total $46,550
April:
[53,000 - 10,000) x 15%] $6,450
[(65,000 - 10,000) x 85%] 46,750
May:
[(65,000 - 10,000) x 15%] $8,250
[(72,000 - 10,000) x 85%] 52,700
Total $60,950
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