Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The controller of Digital Storage, Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following

The controller of Digital Storage, Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

April

May

June

Sales

$90,000

$140,000

$150,000

Manufacturing costs

42,000

48,000

50,000

Selling and administrative expenses

35,000

36,000

40,000

Capital expenditures

---

---

60,000

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% 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 $20,000 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, 80% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of April 1 include cash of $40,000, marketable securities of $65,000, and accounts receivable of $109,600 ($85,000 from March sales and $24,600 from February sales). Current liabilities as of April 1 include $50,000, 12%, 90-day note payable due June 20 and $25,000 of accounts payable incurred in March for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. It is expected that $3,000 in dividends will be received in April. An estimated income tax payment of $32,000 will be made in May. Digital Storages regular quarterly dividend of $10,000 is expected to be declared in May and paid in June. Management desires to maintain a minimum cash balance of $35,000.

Instructions

  1. Prepare a monthly cash budget and supporting schedules for April, May, and June.
  2. On the basis of the cash budget prepared in (1), what recommendation should be made to the controller?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Chapters 14-26

Authors: Carl Warren

27th Edition

1337272116, 978-1337272117

More Books

Students also viewed these Accounting questions

Question

Armed conflicts.

Answered: 1 week ago

Question

Pollution

Answered: 1 week ago