Question

The controller of Harrington Company estimates sales and production for the first four months of 2020 as follows: Sales Production in units January February $32,700 $41,000 1,100 1,400 March $53,400 2,000 April $27,300 2,700 Sales are 40% cash and 60% on account, and 60% of credit sales are collected in the month of the sale. In the month after the sale, 40% of credit sales are collected. It takes 4 kg of direct materials to produce a finished unit, and direct materials cost $5 per kg. All direct materials purchases are on account, and are paid as follows: 40% in the month of the purchase and 60% the following month. Ending direct materials inventory for each month is 40% of the next month's production needs. January's beginning materials inventory is 1,020 kg. Suppose that both accounts receivable and accounts payable are zero at the beginning of January.

Answer 1

Answer:

Total cash sales	$	50840
Accounts receivables balance	$	12816
Direct materials inventory balance	4320	kg
Materials purchases for February	$	30500
Cash payments on account	$	30440
Ending balance in accounts payable	$	27360
Cash balance change	$	32,906

Calculations and explanations:

Total cash sales = 0.4*(32700+41000+53400) = 50840
Accounts receivable balance = (0.6*53400)*0.4 =12816

Direct materials inventory balance = 2700*4*0.4 = 4320

Material purchases for February:

	Jan	Feb	March	Total
Units to be produced	1100	1400	2000	4500
Kg per unit	4	4	4	4
Total required for production	4400	5600	8000	18000
Add: desired ending inventory	2700	3200	4320	4320
Total raw materials required	7100	8800	12320	22320
less: beginning inventory	1020	2700	3200	1020
Direct materials purchase	6080	6100	9120	21300
Cost of kg	5	5	5	5
Total cost of materials purchase	30400	30500	45600	106500

Cash payments on account = (0.6*30400)+(0.4*30500) = 30440

Ending balance in accounts payable = 0.6*45600= 27360

Cash balance change = 50840+ [(0.6*(32700+41000+53400) - 12816] - (106500- 27360)

=35,144