Question

Evergreen Corporation is preparing the master budget for the third quarter ending March 31, 2009.  It sells a single product for $20 a unit.  Sales are 25% cash and 75% credit.  The credit sales are collected 30% in the month of the sale and the remaining 70% is collected in the next month.  No credit sales occurred in December 2008. The December 31 inventory of finished goods is 15,000 units and projected sales are 20,000, 55000, 65,000, 75,000, and 85,000 units for the first  months of the year.  The desired ending inventory for each month is 35% of the next month's sales. The inventory of Finished Goods expected to be on hand on April 30 is 10,500 units.  Each Finished Unit requires 2 kilograms of materials at a cost of $1.00 per kilo and it takes 15 minutes to complete one unit.  Evergreen anticipates having 20,000 kilos of materials on hand at December 31, 2008.  The company requires 15% of the next month production materials needs to be available before the start of the month.  Labour is paid at the rate of $9.00 per hour and is paid when incurred.  Production overhead is incurred based on units of production and costs $1.50 per unit. Sixty percent of the purchases are paid in the month of purchase and 40% are paid in the following month.  Purchases in December 2008 were $232,500.

Operating expenses are paid in the month incurred and consist of sales commissions (8% of sales), shipping cost (4% of sales), office salaries of $15,000 a month, advertising of $2,800 per month,  and amortization of $3,200 per month, and other miscellaneous expenses of $4,500 per month.  The cash balance must not be negative. The beginning cash balance is $48,000.  Loans are obtained at the end of the month in which a cash shortage occurs and are made in even multiples of $1,000.  Interest is 1% per month based on the beginning-of-month loan balance and must be paid at the end of each month when the loan is repaid.   Evergreen paid $4,000 in cash dividends in January and purchased land for $150,000 in March paying cash.

				Cash Budget
			January	February	March	TOTAL
Cash balance, Beginning of month
Add: Cash collections
Total cash available
Less: Disbursements
Purchases
Direct Labour
Manufacturing Overhead
Operating Expenses
Capital Purchases
Cash Dividends
Total Disbursements
Balance before Borrowing
Borrowing (Repayments)
Interest
Cash, End of Month

Answer 1

Cash Budget for Evergreen Corporation is as prepared below:

Evergreen Corporation
For the quarter ended March 31
Cash Budget
	January	February	March	TOTAL
Cash balance, Beginning of month	48,000	132.5	244,057.5	48,000
Add: Cash collections	190,000	732,500	1,195,000	2,117,500
Total cash available	238,000	732,633	1,439,058	2,165,500
Less: Disbursements
Purchases	$120,630	$66,420	$101,690	288,740
Direct Labour	54562.5	131625	154125	340,313
Manufacturing Overhead	36375	87750	102750	226,875
Operating Expenses	70,300	154,300	178,300	402,900
Capital Purchases			150,000	150,000
Cash Dividends	4,000			4,000
Total Disbursements	$285,868	$440,095	$686,865	$1,412,828
Balance before Borrowing	47,867.5	292,537.5	752,192.5	752,672.5
Borrowing (Repayments)	48,000	-48,000		0
Interest	0	-480		-480
Cash, End of Month	132.5	244,057.5	752,192.5	752,192.5

Working Notes:

Evergreen Corporation
Sales Budget
For the quarter ended March 31
	Month
Particulars	January	February	March	Total	April	May
Budgeted Unit sales	20,000	55,000	65,000	140,000	75,000	85,000
Sale Price	20	20	20	20	20	20
Budgeted sales	400,000	1,100,000	1,300,000	2,800,000	1,500,000	1,700,000
Cash sales (25%)	100,000	275,000	325,000	700,000	375,000	425,000
Credit Sales (75%)	300,000	825,000	975,000	2,100,000	1,125,000	1,275,000
1b.
Evergreen Corporation
Schedule of expected Cash collections
For the quarter ended March 31
	Month
Particulars	January	February	March	Total
Cash Sales	100,000	275,000	325,000	700,000
Credit Sales collected in same month (30%)	90,000	247,500	292,500	630,000
Credit Sales collected in following month (70%)		210,000	577,500	787,500
Total collections	190,000	732,500	1,195,000	2,117,500
Account receivable for March Sale			682,500
1c.
Evergreen Corporation
Merchandise Purchase Budget
For the quarter ended March 31
	Month
Particulars	January	February	March	Total	April	May
Budgeted Unit Sales	20,000	55,000	65,000	140,000	75,000	85,000
Add: Desired Ending merchandise inventory (35% of next month sales)	19,250	22,750	26,250	26,250	10,500
Total needs	39,250	77,750	91,250	166,250	85,500	85,000
Less: beginning merchandise inventory	15,000	19,250	22,750	15,000	26,250
Required production	24,250	58,500	68,500	151,250	59,250
Material required per unit	2	2	2		2
Total material required	48,500	117,000	137,000	302,500	118,500
Add: Desired Ending inventory	17,550	20,550	17,775	17,775
Less: beginning merchandise inventory	20,000	17,550	20,550	20,000
Material units purchased	46,050	120,000	134,225	300,275
Cost per unit	1	1	1	1
Material purchased	46,050	120,000	134,225	300,275
1d.
Evergreen Corporation
Schedule of expected Cash payments
For the quarter ended March 31
	Month
Particulars	January	February	March	Total
Beginning Accounts Payable (a)	$93,000			$93,000
Paid in same month	$27,630	$48,000	$53,690	$129,320
Paid in following month		$18,420	$48,000	$66,420
Total payments	$120,630	$66,420	$101,690	$288,740
Evergreen Corporation
Direct labour
For the quarter ended March 31
	Month
Particulars	January	February	March	Total
Production Required	24,250	58,500	68,500	151,250
Direct Labour per unit	0.25	0.25	0.25	0.25
Total hours required	6,063	14,625	17,125	37,813
Cost per hour	9	9	9	9
Total labour cost	54562.5	131625	154125	340312.5
Evergreen Corporation
Production Overhead
For the quarter ended March 31
	Month
Particulars	January	February	March	Total
Production Required	24,250	58,500	68,500	151,250
Cost per unit	1.5	1.5	1.5	1.5
Total cost	36375	87750	102750	226875
Evergreen Corporation
Operating expenses
For the quarter ended March 31
	Month
Particulars	January	February	March	Total
Sales commissions (8% of Sales)	32,000	88,000	104,000	224,000
Shipping cost (4% of sales)	16,000	44,000	52,000	112,000
Office Salaries	15,000	15,000	15,000	45,000
Advertising	2,800	2,800	2,800	8,400
Other miscellaneous exp	4,500	4,500	4,500	13,500
	70,300	154,300	178,300	402,900
Note: Amortization not paid in cash