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 10% 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 $10,000 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, 75% 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 $47,000, marketable securities of $66,000, and accounts receivable of $147,200 ($108,000 from February sales and $39,200 from January sales). Sales on account for January and February were $98,000 and $108,000, respectively. Current liabilities as of March 1 include a $62,000, 12%, 90-day note payable due May 20 and $10,000 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 $3,700 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 $10,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $37,000.

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 $123,000 $155,000 $209,000 Manufacturing costs 52,000 67,000 75,000 Selling and administrative expenses 36,000 42,000 46,000 Capital expenditures _ _ 50,000 Dash Shoes Inc. Cash Budget For the Three Months Ending May 31, 2014 April May Estimated cash receipts from: Cash sales Collection of accounts receivable Dividends Total cash receipts Estimated cash payments for Manufacturing cost:s Selling and administrative expenses Capital expenditures Other purposes: Note payable (including interest) Income tax Dividends

Explanation / Answer

Answer:

Estimated cash receipts from: March April May Cash sales (10%) $12,300 $15,500 $20,900 Collection of accounts receivable 104000 $109,620 $127,980 Dividends 3,700 Total cash receipts $120,000 $125,120 $148,880 Estimated cash payments for: Manufacturing costs 41500 53250 63000 Selling and administrative expenses 36,000 42,000 46000 Capital expenditures 50000 Other purposes: Note payable (including interest) 64126 Income tax 19000 Dividends 10000 Total cash payments $77,500 $114,250 $233,126 Cash increase or (decrease) $42,500 $10,870 ($84,246) Cash balance at beginning of month 47,000 89,500 100,370 Cash balance at end of month 89,500 100,370 16,124 Minimum cash balance 37,000 37,000 37,000 Excess or (deficiency) $52,500 $63,370 ($20,876)

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