Question

This question has multiple parts:

Part 1. Martin Clothing Company is a retail company that sells hiking and other outdoor gear specially made for the desert heat. It sells to individuals as well as local companies that coordinate adventure getaways in the desert for tourists. The following information is available for several months of the current year:

Month	Sales		Purchases		Cash Expenses Paid
May	$	95,000	$	69,000	$	21,000
June		115,000		90,000		28,500
July		131,000		111,000		33,000
August		130,000		74,000		32,900

The majority of Martin’s sales (75 percent) are cash, but a few of the excursion companies purchase on credit. Of the credit sales, 40 percent are collected in the month of sale and 60 percent are collected in the following month. All of Martin’s purchases are on account with 50 percent paid in the month of purchase and 50 percent paid the following month.

Required:

Determine budgeted cash collections for July and August.

Determine budgeted cash payments for July and August.

Part 2.

Iguana, Inc., manufactures bamboo picture frames that sell for $25 each. Each frame requires 4 linear feet of bamboo, which costs $2.00 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $12.00 per hour. Iguana has the following inventory policies:    

• Ending finished goods inventory should be 40 percent of next month’s sales.
• Ending direct materials inventory should be 30 percent of next month’s production.

Expected unit sales (frames) for the upcoming months follow:

March	275
April	250
May	300
June	400
July	375
August	425

Variable manufacturing overhead is incurred at a rate of $0.30 per unit produced. Annual fixed manufacturing overhead is estimated to be $7,200 ($600 per month) for expected production of 4,000 units for the year. Selling and administrative expenses are estimated at $650 per month plus $0.60 per unit sold.

Iguana, Inc., had $10,800 cash on hand on April 1. Of its sales, 80 percent is in cash. Of the credit sales, 50 percent is collected during the month of the sale, and 50 percent is collected during the month following the sale.

Of direct materials purchases, 80 percent is paid for during the month purchased and 20 percent is paid in the following month. Direct materials purchases for March 1 totaled $2,000. All other operating costs are paid during the month incurred. Monthly fixed manufacturing overhead includes $150 in depreciation. During April, Iguana plans to pay $3,000 for a piece of equipment.

Compute the budgeted cash receipts for Iguana.

	April May June 2nd Quarter Total Budgeted Cash Receipts

Compute the budgeted cash payments for Iguana.

	April May June 2nd Quarter Total Budgeted Cash Payments

Prepare the cash budget for Iguana. Assume the company can borrow in increments of $1,000 to maintain a $10,000 minimum cash balance.

	April May June 2nd Quarter Total Beginning Cash Balance Plus: Budgeted Cash Receipts Less: Budgeted Cash Payments Preliminary Cash Balance Cash Borrowed / Repaid Ending Cash Balance

Part 3.

Definition Term A. A statement that summarizes budgeted sales revenue and expenses for the budget period. B. A budget showing how many units need to be produced in each budget period. C. A statement showing the estimated total sales revenue to be generated in each budget period. D. A statement that shows expected assets, liabilities, and owners’ equity at the end of the budget period. E. A goal that management wants to achieve within one year or less. F. Budgeted manufacturing cost per unit times the budgeted unit sales. G. A financial budget providing information about cash receipts and payments. H. A vision of the organization’s achievements over the long term. I. Budgets that focus on the financial resources needed to support operations. J. A budget that indicates the quantity of materials, labor, and overhead to be used in production.

Options for part 3:

• Budgeted Balance Sheet
• Budgeted Cost of Goods Sold
• Cash Budget
• Financial Budgets
• Short-Term Objective
• Strategic Plan
• None of These are Correct

Answer 1

Part 1

Cash sale = 75%

Credit sale = 25%, 40% credit sale is collected within same month. It means that 75% + 25%*40% = 85% sale is collected within same month and 15% sale is collected next month.

Budgeted Cash Collections

		Collection
	Sale	May	Jun	Jul	Aug	Sep
May	95,000.00	80,750.00	14,250.00
Jun	115,000.00		97,750.00	17,250.00
Jul	131,000.00			111,350.00	19,650.00
Aug	130,000.00				110,500.00	19,500.00
Collection	471,000.00	80,750.00	112,000.00	128,600.00	130,150.00	19,500.00

Budgeted Cash Payments

		Payment for Purchase
	Purchase	May	Jun	Jul	Aug	Sep
May	69,000.00	34,500.00	34,500.00
Jun	90,000.00		45,000.00	45,000.00
Jul	111,000.00			55,500.00	55,500.00
Aug	74,000.00				37,000.00	37,000.00
	344,000.00	34,500.00	79,500.00	100,500.00	92,500.00	37,000.00
Cash Exp		21,000.00	28,500.00	33,000.00	32,900.00
Total Payment		55,500.00	108,000.00	133,500.00	125,400.00	37,000.00