Reference no: EM132740

Question:

Cash Budget

The controller of Dash Shoes Inc. instructs you to organize a monthly cash budget for the next three months. You are presented with the subsequent budget information:

                                                       March                        April                            May

Sales                                            $145,000                    $180,000                  $238,000

Manufacturing costs                  61,000                         77,000                       86,000

Selling and administrative expenses 42,000               49,000                      52,000

Capital expenditures                        _                                    _                          57,000

The company expects to sell about 15percent of its merchandise for cash. Of sales on account, 70% are expected to be collected in full in the month subsequent the sale and the remainder the subsequent month. Depreciation, property and insurance tax expense represent $7,000 of the evaluated 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 subsequent month.

Existing assets as of March 1 include cash of $55,000, marketable securities of $78,000, and accounts receivable of $161,800 ($127,000 from February sales and $34,800 from January sales). Sales on account for January and February were $116,000 and $127,000, respectively. Present liabilities as of March 1 include a $73,000, 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 $4,400 in dividends will be received in March. An estimated income tax payment of $22,000 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 $43,000.

1. Purpose a monthly cash budget and supporting schedules for March, April, and May. Input all amounts as positive values except overall cash deficiency and decrease which should be shown with a minus sign. Consider 360 days per year for interest calculations.