Question

Colter Company prepares monthly cash budgets. Relevant data fromoperating budgets for 2017 are as follows:

January February

Sales 360,000 $400,000

Direct materials purchases 120,000 125,000

Direct labor 90,000 100,000

Manufacturing overhead 70,000 75,000

Selling and administrative expenses 79,000 85,000

All sales are on account. Collections are expected to be 50% inthe month of sale, 30% in the first month following the sale, and20% in the second month following the sale. Sixty percent (60%) ofdirect materials purchases are paid in cash in the month ofpurchase, and the balance due is paid in the month following thepurchase. All other items above are paid in the month incurredexcept for selling and administrative expenses that include $1,000of depreciation per month.

Other data:

1. Credit sales: November 2016, $250,000; December 2016,$320,000.

2. Purchases of direct materials: December 2016, $100,000.

3. Other receipts: January Collection of December 31, 2016,notes receivable $15,000; FebruaryâProceeds from sale of securities $6,000.

4. Other disbursements: February Payment of $6,000 cashdividend.

The companys cash balance on January 1, 2017, is expected to be $60,000. The company wants to maintain a minimum cash balance of $50,000.

Prepare schedules for (1) expected collections from customersand (2) expected payments for direct materials purchases forJanuary and February.

Prepare a cash budget for January and February in columnarform.

Answer 1

1. Expected Collections from Customers for January is $326,000 and February $372,000

2. Expected Payments for Direct Materials for January is $112,000 and February $123,000

3. Ending Amount required (to make ending balance =$50,000) for January is 0 and February is $9.000. Cash Budget prepared in explanation below.

Step-by-step explanation:

Schedule for Expected Collections & Payments and Cash Budget prepared below. Moreover, please note that all totaling amounts have been marked in Bold Letters.

1. Schedule of expected customer collections for January and February.

Particulars January February

50% of current month sales 180,000 200,000

30% in of previous month' s sales (i.e., 30% of December's sales, 30% of January's sales) 96,000 108,000

20% of before previous month's sale (20%

of November's sale, 20%of December's sales) 50,000 64,000

Total cash collections from customers 326,000 372,000

2. Expected payments for direct material purchases:

Particulars January February

60 % of current month's purchases 72,000 75,000

40% of previous months purchases (i.e 40%

of December's purchase, 40% of January's purchase) 40,000 48,000

Total payments for purchases 112,000 123,000

3.Cash budget for the months January and February:

Particulars January February

Cash Receipts:

Collections from customers (from 1 above) 326,000 372,000

Collection of notes receivable 15,000 0

Sale of securities 0 6000

Total cash receipts 341,000 378,000

Add: opening balance $60,000 51,000

Total cash receipts and opening balance $401,000 429,000

Cash payments:

Expected payments for purchases (from 2 above) 112,000 123,000

DIrect labour 90,000 100,000

manufacturing overhead 70,000 75,000

Selling and administration expenses (less $1,000) 78,000 84,000

Cash dividends 0 6,000

Total cash payments 350,000 388,000

Ending cash balance (receipts +

opening balance -payments) $51,000 $41,000

Amount to be borrowed (to make

ending balance =$50,000) 0 $9,000

Final ending balance of cash $51,000 $50,000