Question

Nigh Corporation prepares monthly cash budgets. Relevant data from operating budgets for 2017 Prepare cash bodget (LO 4) AP P21-3A follow: February January $400,000 $350,000 120,000 80,000 70,000 79,000 130,000 100,000 Sales Direct materials purchases Direct labour Manufacturing overhead Selling and administrative expenses 75,000 81,000 Budgetary Planning All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month followie the sale, and 20% in the second month following the sale. Sixty percent of direct materials purchases are paid cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred, except for selling and administrative expenses, which include $1,00 f depreciation per month. Other data: 1. Credit sales: November 2016, $260,000; December 2016, $300,000 2. Purchases of direct materials: December 2016, $100,000 3. Other receipts: January collection of December 31, 2016, notes receivable, S15,000 February proceeds from sale of investments, $6,000 4. Other disbursements: February payment of dividends, $5,000 The company's cash balance on January 1, 2017, is expected to be $60,000. The company wants to maintain minimum cash balance of $50,000. Instructions (a) Prepare schedules for (1) the expected cash collections from customers and (2) the expected payments fir direct materials purchases. (b) Prepare a cash budget for January and February

Answer 1

SOLUTION

1. Schedule for expected cash collection

	January ($)	February ($)	Total ($)
Collection from -
November sales (260,000*20%)	52,000		52,000
December sales (300,000*30%), (300,000*20%)	90,000	60,000	150,000
January sales (350,000*50%), (350,000*30%)	175,000	105,000	280,000
February sales (400,000*50%)		200,000	200,000
Total	317,000	365,000	682,000

Schedule of expected payments

	January ($)	February ($)	Total ($)
December (100,000*40%)	40,000		40,000
January (120,000*60%), (120,000*40%)	72,000	48,000	120,000
February (130,000*60%)		78,000	78,000
Total	112,000	126,000	238,000

2. Cash budget-

	January	February
Beginning cash balance	60,000	52,000
Collections from credit sales	317,000	365,000
Collection of notes receivable	15,000
Proceeds from sale of investments		6,000
Total cash available (A)	392,000	423,000
Direct materials	112,000	126,000
Direct labor	80,000	100,000
Overhead	70,000	75,000
Selling and administrative expenses (79,000-1,000),(81,000-1,000)	78,000	80,000
Payment of dividend		5,000
Total disbursements (B)	340,000	386,000
Excess/ (Deficiency) of cash (A-B)	52,000	37,000
Borrowings	0	0
Interest expense	0	0
Repayment	0	0
Ending cash balance	52,000	37,000