Question

Sharpe Company has provided the following budget information for the first quarter of 2018​:

Total sales	$218,000
Budgeted purchases of direct materials	40,300
Budgeted direct labor cost	37,000
Budgeted manufacturing overhead costs:
Variable manufacturing overhead	1,125
Depreciation	1,100
Insurance and property taxes	6,750
Budgeted selling and administrative expenses:
Salaries expense	12,000
Rent expense	4,500
Insurance expense	1,400
Depreciation expense	100
Supplies expense	10,900

Requirement 1. Prepare Sharpe Company's schedule of cash receipts from customers and schedule of cash payments for the first quarter of 2018.

Begin by preparing the schedule of cash receipts from customers for the first quarter of 2018:

a. Capital expenditures include $36,000 for new manufacturing equipment to be purchased and paid in the first quarter.

b. Cash receipts are 75% of sales in the quarter of the sale and 25% in the quarter following the sale.

c. Direct materials purchases are paid 70% in the quarter purchased and 30% in the next quarter.

d. Direct​ labor, manufacturing​ overhead, and selling and administrative costs are paid in the quarter incurred.

e. Income tax expense for the first quarter is projected at $41,000 and is paid in the quarter incurred.

f. Sharpe Company expects to have adequate cash funds and does not anticipate borrowing in the first quarter.

g. The December 31, 2017 balance in cash is $32,000 in Accounts Receivable is $26,200 and in Accounts Payable is $12,800.

REQUIREMENTS:

Prepare Sharpe ​Company's schedule of cash receipts from customers and schedule of cash payments for the first quarter of 2018.

2.Prepare Sharpe companys cash budget for the first quarter of 2018.

Answer 1

Ans:-

1. Schedule for cash receipts & payments:-

• Balance of Accounts receivables $26,200 represents the 25% of sales in the previous quarter, which will be received in this quarter.
• Only 75% of this quarter's sales will be received in this quarter, remaining would be received in the next quarter.
• 70% of direct material purchases would be paid in this quarter = $40300 * 70% = $28,210
• Opening balance in accounts payable $12,800 represents direct material purchases of previous quarter, which shall be paid in this quarter.
• Depreciation is non-cash expenses, hence not to be considered for cash budgeting.

Schedule of Cash Receipts for first quarter of 2018 :-

Particulars	Amount ($)
Receipt from sale of this quarter	$163,500
[$218,000 * 75%]
Accounts receivables	$26,200
Total	$189,700

Schedule of Cash Payments for first quarter of 2018:-

Particulars	Amount ($)
Payment for purchase of direct materials	$28,210
[$40,300 * 70%]
Accounts payable	$12,800
Capital expenditure to be paid in this quarter	$36,000
Direct labour cost	$37,000
Variable mfg, overhead	$1,125
Insurance & property tax	$6,750
salary	$12,000
Rent	$4,500
Insurance expense	$1,400
Supplies	$10,900
Income tax expense	$41,000
Total	$191,685

2. Cash Budget for First quarter of 2018 :-

Cash Budget
First quarter of the year 2018
Particulars	Amount($)
Opening cash balance	$32,000
Total cash receipts	$189,700
Total cash payments	$ (191,685)
Closing cash balance	$30,015