Question

Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2020 are as follows.

January

February

Sales$396,000$440,000Direct materials purchases132,000137,500Direct labor99,000110,000Manufacturing overhead77,00082,500Selling and administrative expenses86,90093,500

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 $1,100 of depreciation per month.

Other data:

1.Credit sales: November 2019, $275,000; December 2019, $352,000.2.Purchases of direct materials: December 2019, $110,000.3.Other receipts: January—Collection of December 31, 2019, notes receivable $16,500;                     February—Proceeds from sale of securities $6,600.4.Other disbursements: February—Payment of $6,600 cash dividend.

The company's cash balance on January 1, 2020, is expected to be $66,000. The company wants to maintain a minimum cash balance of $55,000.

Your answer is correct.

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

cash budget for January and February in columnar form.

Answer 1

Solution:

1.) Expected Collections from Customers:

	January	February
November ($275,000)	$55,000($275,000 × 20%)	0
December ($352,000 )	$105,600($352,000 × 30%)	$70,400($352000 × 20%)
January ($396,000)	$198,000($396,000 × 50%)	$118,800($396,000 × 30%)
February ($440,000)	0	$220,000($440000 × 50%)
Total collection	$358,600	$409,200

2.) Expected payment for Direct Materials:

	January	February
December ($110,000)	$44,000($110,000 × 40%)	0
January ($132,000)	$79,200 ( $132,000 × 60%)	$52,800($132,000 × 40%)
February ($137,500)	0	$82,500 ( $137,500 × 60%)
Total payments for purchases	$123,200	$135,300

Colter Company

Cash Budget

For the Two Monts January and February 28, 2020

	January	February
Cash Receipts:
Collections from customers (from 1 above)	$358,600	$409,200
Collections of notes receivable	$16,500	0
Sales of securities	0	$6,600
Total cash receipts	$375,100	$415,800
Add: Opening balance	$66,000	$56,100
Total cash and receipts balance	$441,100	$471,900
Cash payments:
Expected payments made for purchases (from 2 above)	$123,200	$135,300
Direct labor	$99,000	$110,000
Manufacturing overhead	$77,000	$82,500
Selling and administrative expenses (less $1,100)	$85,800	92,400
Cash dividends	0	$6,600
Total cash payments	$385,000	$426,800
Ending cash balance (receipts + opening balance - payments)	$56,100($441,100 - $385,000)	$45,100($471,900 - $426,800)
Amount to be borrowed (to make ending balance = $55,000)	0	$9,900
Final ending cash balance	$56,100	$55,000

* If you have any doubt, please ask me.