Question

Tilson Corporation has projected sales and production in units for the second quarter of the coming year as follows:

	April	May	June
Sales	61,000	51,000	71,000
Production	71,000	61,000	61,000

Cash-related production costs are budgeted at $6 per unit produced. Of these production costs, 50% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $60,000 per month. The accounts payable balance on March 31 totals $190,000, which will be paid in April.

All units are sold on account for $15 each. Cash collections from sales are budgeted at 60% in the month of sale, 25% in the month following the month of sale, and the remaining 15% in the second month following the month of sale. Accounts receivable on April 1 totaled $586,000 ($106,000 from February's sales and $480,000 from March’s sales).

Required:

a. Prepare a schedule for each month showing budgeted cash disbursements for Tilson Corporation.

b. Prepare a schedule for each month showing budgeted cash receipts for Tilson Corporation.

Answer 1

SOLUTION

1. Schedule of budgeted cash disbursements

	April	May	June
Production cost	426,000 (71,000*$6)	366,000 (61,000*$6)	366,000 (61,000*$6)
Cash disbursement:
Production this month	213,000 (426,000*50%)	183,000 (366,000*50%)	183,000 (366,000*50%)
Production prior month	190,000	213,000 (426,000*50%)	183,000 (366,000*50%)
Selling and administration	60,000	60,000	60,000
Total disbursement	463,000	456,000	426,000

2. Schedule of budgeted cash receipts

	April	May	June
Total sales	915,000 (61,000*$15)	765,000 (51,000*$15)	1,065,000 (71,000*$15)
Cash receipts:
February sales	106,000
March sales	300,000 (1,200,000*25%)	180,000 (1,200,000*15%)
April sales	549,000 (915,000 *60%)	228,750 (915,000 *25%)	137,250(915,000 *15%)
May sales		459,000 (765,000*60%)	191,250 (765,000*25%)
June sales			639,000(1,065,000*60%)
Total receipts	955,000	867,750	967,500

The total sales for the month of March = Accounts Receivable Balance as on 1st April/(1-Sales Percentage Already Collected)

= (586,000-106,000) / (1-60%) = 1,200,000