Question

Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2020 are as follows. January February Sales $421,200 $468,000 Direct materials purchases 140,400 146,250 Direct labor 105,300 117,000 Manufacturing overhead 81,900 87,750 Selling and administrative expenses 92,430 99,450 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 $1,170 of depreciation per month. Other data: 1. Credit sales: November 2019, $292,500; December 2019, $374,400. 2. Purchases of direct materials: December 2019, $117,000. 3. Other receipts: January—Collection of December 31, 2019, notes receivable $17,550; February—Proceeds from sale of securities $7,020.

4.

Other disbursements: February—Payment of $7,020 cash dividend.

The company’s cash balance on January 1, 2020, is expected to be $70,200. The company wants to maintain a minimum cash balance of $58,500.

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

Expected Collections from Customers
				Jan	Feb
November	(292,500*20%)			58500
December	(374,400*30%;20%)			112320	74880
January	(421,200*50%;30%)			210600	126360
February	(468,000*50%)				234000
Total collections				381420	435240
expected payment for Direct materials
				Jan	Feb
December	(117,000*40%)			46800
January	(140,400*60%;40%)			84240	56160
February	(146,250*60%)				87750
total payments				131040	143910
	Cash budget
				Jan	Feb
opening cash balance				70,200	59,670
Add:Receipts
cash collection				381420	435240
collection of note receivable				17,550	0
sale of securities				0	7,020
total receipts				398970	442260
total cash available				469,170	501930
less:Cash disbursement
cash paid for direct materials				131040	143910
cash paid for direct labor				105,300	117,000
cash paid for manufacturing overhead				81,900	87,750
Selling and administrative expense				91260	98280
Cash dividend					7,020
total cash disbursement				409500	453960
Excess(Deficiency)				59,670	47970
financing
Add:borrowings				0	10530
less:Repayments				0
Cash balance				59,670	58500