Question

Sheffield Company prepares monthly cash budgets. Relevant data from operating budgets for 2017 are as follows: Sales Direct materials purchases Direct labor Manufacturing overhead Selling and administrative expenses January February $381,600 $424,000 127,200 132,500 95,400 106,000 74,200 79,500 83,740 90.100 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 $1,060 of depreciation per month. Other data: 1. Credit sales: November 2016, $265,000; December 2016, $339,200. 2. Purchases of direct materials: December 2016, $106,000. 3. Other receipts: January-Collection of December 31, 2016, notes receivable $15,900; February-Proceeds from sale of securities $6,360. 4. Other disbursements: February-Payment of $6,360 cash dividend. The company's cash balance on January 1, 2017, is expected to be $63,600. The company wants to maintain a minimum cash balance of $53,000.
Thank you!

Answer 1

Cash collections:

	January	February
a. Total credit sales	$3,81,600	$4,24,000
b. 50% of credit sales collected in same month of sale	$1,90,800	$2,12,000
	($381,600 * 50%)	($424,000 * 50%)
c. November month credit sales collected in January	$53,000
	($265,000 * 20%)
d. December month credit sales collected in January and February	$1,01,760	$67,840
	($339,200 * 30%)	($339,200 * 20%)
e. Other receipts	$15,900	$6,360
f. Total receipts (b + c + d + e)	$3,61,460	$2,86,200

Cash disbursements:

	January	February
a. Total purchases	$1,27,200	$1,32,500
b. 60% of purchases paid in cash in the month of purchase	$76,320	$79,500
	($127,200 * 60%)	($132,500 * 60%)
c. December month purchases paid in January	$42,400
	($106,000 * 40%)
d. January month purchases paid in February	Nil	$50,880
		($127,200 * 40%)
e. Direct labor	$95,400	$1,06,000
f. Manufacturing overhead	$74,200	$79,500
g. Selling and administrative expense	$82,680	$89,040
	($83,740 - $1,060)	($90,100 - $1,060)
h. Other disbursements - cash dividend	Nil	$6,360
i. Total disbursements (b + c + d + e + f + g + h)	$3,71,000	$4,11,280

Cash budget:

	January	February
a. Opening cash balance	$63,600	$54,060
b. Cash collections	$3,61,460	$2,86,200
c. Cash disbursements	$3,71,000	$4,11,280
d. Preliminary cash balance (a + b - c)	$54,060	-$71,020
e. Target cash balance	$53,000	$53,000
f. Borrowings / (Repayment)	Nil	$1,24,020
g. Closing cash balance (d + f)	$54,060	$53,000