Question

Sheffield Company prepares monthly cash budgets. Relevant data from operating budgets for 2017 are as follows: Sales Direct materials purchases January $411,120 137,040 102,780 79,940 90,218 February $456,800 142,750 114,200 85,650 97,070 Direct labor Manufacturing overhead Selling and administrative expenses 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 $1,142 of depreciation per month. Other data: 1. 2. 3. Credit sales: November 2016, $285,500; December 2016, $365,440. Purchases of direct materials: December 2016, $114,200. Other receipts: January-Collection of December 31, 2016, notes receivable $17,130; February–Proceeds from sale of securities $6,852. Other disbursements: February-Payment of $6,852 cash dividend. 4. The company's cash balance on January 1, 2017, is expected to be $68,520. The company wants to maintain a minimum cash balance of $57,100.

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

2. Prepare a cash budget for January and February in columnar form. (Do not leave any answer field blank. Enter 0 for amounts.)

Answer 1

1. (1) Expected Collections from Customers November ($285,500).. December ($365,440) January ($411,120).... February ($456,800) Total collections..... January $ 57,100 109,632 205,560 February $ 0 73,088 123,336 228,400 $424.824 $372.292 Expected Payments for Direct Materials January $ 45,680 82,224 December ($114,200) January ($137,040) February ($142,750) Total payments. February $ 0 54,816 85,650 $140.466 $127.904

SHEFFIELD COMPANY Cash Budget For the Two Months Ending February 28, 2017 January $ 68,520 February $ 58,242 372,292 424,824 17,130 389.422 457,942 6,852 431,676 489,918 127,904 140,466 Beginning cash balance... Add: Receipts Collections from customers.. [See Schedule (1)] Notes receivable... Sale of securities Total receipts ..... Total available cash Less: Disbursements Direct materials [See Schedule 2] Direct labor... Manufacturing overhead.. Selling and administrative expenses* Cash Dividends Total disbursements.. Excess (deficiency) of available cash over cash disbursements... Financing Borrowings. Repayments.. Ending cash balance 102,780 79,940 114,200 85,650 89,076 95,928 6,852 399,700 443,096 58,242 46,822 10,278 $ 58,242 $57.100 *Selling and administrative expenses less $1,142 depreciation.