Question

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

	April	May	June
Sales	45,000	35,000	55,000
Production	55,000	45,000	45,000

Cash-related production costs are budgeted at $7 per unit produced. Of these production costs, 25% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $70,000 per month. The accounts payable balance on March 31 totals $174,000, which will be paid in April.

All units are sold on account for $19 each. Cash collections from sales are budgeted at 50% in the month of sale, 30% in the month following the month of sale, and the remaining 20% in the second month following the month of sale. Accounts receivable on April 1 totaled $433,000 ($93,000 from February's sales and $340,000 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 (a):

	April	May	June
Production costs (Number of units X Cost per unit)	$ 385,000	$ 315,000	$ 315,000
Cash disbursements:
Production costs this month (25%)	$ 96,250	$ 78,750	$ 78,750
Production costs prior month (75%)	0	$ 288,750	$ 236,250
Selling and administrative expenses	$ 70,000	$ 70,000	$ 70,000
Accounts payable	$ 174,000	0	0
Total disbursements	$ 340,250	$ 437,500	$ 385,000

(b)

	April	May	June
Total sales (Number of units X Price per unit)	$ 855,000	$ 665,000	$ 10,45,000
Cash receipts:
February sales	$ 93,000	0	0
March sales	$ 340,000	0	0
April sales	$ 427,500 (50% of April sales)	$ 256,500 (30% of April sales)	$ 171,000 (20% of April sales)
May sales	0	$ 332,500 (50% of May sales)	$ 199,500 (30% of May sales)
June sales	0	0	$ 522,500 (50% of June sales)
Total cash receipts	$ 860,500	$ 589,000	$ 893,000