Question

Problem 9-4A (Part Level Submission)

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

		January		February
Sales		$432,000		$400,000
Direct materials purchases		144,000		150,000
Direct labor		108,000		120,000
Manufacturing overhead		84,000		90,000
Selling and administrative expenses		94,800		102,000

All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Sixty percent (60%) of direct materials purchases are paid in 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 that include $1,200 of depreciation per month.

Other data:

Other data: 1. Credit sales: November 2019, $300,000; December 2019, $384,000. 2. Purchases of direct materials: December 2019, $120,000. 3. Other receipts: January—Collection of December 31, 2019, notes receivable $18,000;                       February—Proceeds from sale of securities $7,200. 4. Other disbursements: February—Payment of $7,200 cash dividend. The company’s cash balance on January 1, 2020, is expected to be $72,000. The company wants to maintain a minimum cash balance of $60,000.

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

Expected Collections from Customers
		January		February
November		$enter a dollar amount		$enter a dollar amount
December		enter a dollar amount		enter a dollar amount
January		enter a dollar amount		enter a dollar amount
February		enter a dollar amount		enter a dollar amount
Total collections		$enter a total amount		$enter a total amount

Expected Payments for Direct Materials
		January		February
December		$enter a dollar amount		$enter a dollar amount
January		enter a dollar amount		enter a dollar amount
February		enter a dollar amount		enter a dollar amount
Total payments		$enter a total amount		$enter a total amount

Prepare a cash budget for January and February in columnar form.

Answer 1

1) Schedule of Expected Cash Collections (Amounts in $)

Expected Collections from Customers
		January		February
November		60,000 (300,000*20%)		0
December		115,200 (384,000*30%)		76,800 (384,000*20%)
January		216,000 (432,000*50%)		129,600 (432,000*30%)
February		0		200,000 (400,000*50%)
Total collections		391,200		406,400

2) Schedule of Expected Payments for Direct Materials Purchase (Amounts in $)

Expected Payments for Direct Materials
		January		February
December		48,000 (120,000*40%)		0
January		86,400 (144,000*60%)		57,600 (144,000*40%)
February		0		90,000 (150,000*60%)
Total payments		134,400		147,600

Cash Budget for January and February is shown as follows:- (Amounts in $)

	January	February
Beginning Cash Balance	72,000	61,200
Total cash collection for sales	391,200	406,400
Other cash receipts	18,000	7,200
Total Cash Available (A)	481,200	474,800
Cash disbursements:
Total payments for direct materials	134,400	147,600
Direct labor	108,000	120,000
Manufacturing overhead	84,000	90,000
Selling and administrative expenses (except dep.)	93,600 (94,800-1,200)	100,800 (102,000-1,200)
Other disbursements	0	7,200
Total cash disbursements (B)	420,000	465,600
Ending Cash Balance (A-B)	61,200	9,200