Question

Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2017 are as follows:

		January		February
Sales		$ 425,520		$ 472,800
Direct materials purchases		141,840		147,750
Direct labor		106,380		118,200
Manufacturing overhead		82,740		88,650
Selling and administrative expenses		93,378		100,470

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 $ 1,182 of depreciation per month.

Other data:

1.		Credit sales: November 2016, $ 295,500; December 2016, $ 378,240.
2.		Purchases of direct materials: December 2016, $ 118,200.
3.		Other receipts: January—Collection of December 31, 2016, notes receivable $ 17,730;
		February—Proceeds from sale of securities $ 7,092.
4.		Other disbursements: February—Payment of $ 7,092 cash dividend.

The company’s cash balance on January 1, 2017, is expected to be $ 70,920. The company wants to maintain a minimum cash balance of $ 59,100.

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.

Answer 1

1	Schedule of expected cash collections from customers:
					Jan	Feb
	Sales				425520	472800
	50% in the month of sale
	(50% of Jan & Feb sales)				212760	236400
	30% in the first month following the sale				113472	127656
	(30% of Dec & Jan sales)				(378240*0.30)
	20% in the second month following the sale				59100	75648
	(20% of Nov & Dec sales)				(295500*0.20)	(378240*0.20)
	Total				385332	439704
	Schedule of expected payments for direct materials purchases:
					Jan	Feb
	Direct materials purchases				141840	147750
	60% in the month of purchase				85104	88650
	(60% of Jan & Feb purchases)
	balance due is paid in the month following the purchase				47280	56736
	(40% of Dec & Jan purchases)				(118200*0.40)
	Total				132384	145386
2	Cash Budget:
	Jan Feb Beginning balance (A) 70920 60282 Add: Expected cash collections 385332 439704 Collection of notes receivable 17730 Proceeds from sale of securities 7092 Total (B) 403062 439704 Less: Payment for Direct material purchases 132384 145386 Payment for Direct labor 106380 118200 Payment for Manufacturing overhead 82740 88650 Selling and administrative expenses excluding depreciation 92196 99288 (93378-1182) (100470-1182) Cash dividend 7092 Total (C) 413700 458616 Ending balance (A)+(B)-© 60282 41370 Minimum balance required 59100 59100 Amount to be borrowed 0 17730 (59100-41370)