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	$114,000		$137,000		$195,000
Manufacturing costs	48,000		59,000		70,000
Selling and administrative expenses	33,000		37,000		43,000
Capital expenditures	_		_		47,000

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 $6,000 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 $43,000, marketable securities of $62,000, and accounts receivable of $136,400 ($100,000 from February sales and $36,400 from January sales). Sales on account for January and February were $91,000 and $100,000, respectively. Current liabilities as of March 1 include a $57,000, 12%, 90-day note payable due May 20 and $6,000 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 $3,400 in dividends will be received in March. An estimated income tax payment of $16,000 will be made in April. Dash Shoes' regular quarterly dividend of $6,000 is expected to be declared in April and paid in May. Management desires to maintain a minimum cash balance of $34,000.

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.

Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31, 2016
	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   be maintained in May. This situation can be corrected by   and/or by the   of the marketable securities, if they are held for such purposes. At the end of March and April, the cash balance will   the minimum desired balance.

Answer 1

Solution 1:

Computation of Collection from Customer
Particulars	March	April	May
Collection for January Sales	$36,400.00
Collection for February Sales	$60,000.00	$40,000.00
Collection for March Sales		$61,560.00	$41,040.00
Collection for April Sales			$73,980.00
Total cash collections	$96,400.00	$101,560.00	$115,020.00
Computation of Cash payment of manufacturing costs
Particulars	March	April	May
Payment for February Manufacturing cost	$6,000.00
Payment for March Manufacturing cost	$31,500.00	$10,500.00
Payment for April Manufacturing cost		$39,750.00	$13,250.00
Payment for May Manufacturing cost			$48,000.00
Total cash disbursements	$37,500.00	$50,250.00	$61,250.00

Dash Shoes Inc.
Cash Budget
For the Three Months Ending May 31
Particulars	March	April	May
Estimated cash receipts from:
Cash sales	$11,400.00	$13,700.00	$19,500.00
Collection of accounts receivable	$96,400.00	$101,560.00	$115,020.00
Dividends	$3,400.00
Total cash receipts	$111,200.00	$115,260.00	$134,520.00
Less estimated cash payments for:
Manufacturing costs	$37,500.00	$50,250.00	$61,250.00
Selling and administrative expenses	$33,000.00	$37,000.00	$43,000.00
Capital expenditures			$47,000.00
Other purposes:
Income tax		$16,000.00
Dividends			$6,000.00
Total cash payments	$70,500.00	$103,250.00	$157,250.00
Cash increase or (decrease)	$40,700.00	$12,010.00	-$22,730.00
Plus cash balance at beginning of month	$43,000.00	$83,700.00	$95,710.00
Cash balance at end of month	$83,700.00	$95,710.00	$72,980.00
Less minimum cash balance	$34,000.00	$34,000.00	$34,000.00
Excess or (deficiency)	$49,700.00	$61,710.00	$38,980.00

Solution 2:

The budget indicates that the minimum cash balance will not be maintained in May. This situation can be corrected by borrowing or by the Sale of the marketable securities, if they are held for such purposes. At the end of March and April, the cash balance will exceeds the minimum desired balance.