Question

Colosimo Company started business on January 1, 2021. The company estimated that sales for the first six months would be as follows:

Month		Units		Dollars
January		12,000		$ 72,000
February		9,500		57,000
March		14,000		84,000
April		21,700		130,200
May		20,000		120,000
June		32,100		192,600

The company sells all items on account and expects collections of accounts receivable to be as follows: 80% in the month of the sale, and the remaining 20% in the month after the sale.

Required:

1. Compute the expected cash collections during the months of January, February, March, April, May and June.
2. The company has decided that finished goods inventory at the end of each month should ideally be equal to 70% of next month’s sales. What should budgeted production be for each month?
3. It takes two pounds of raw material to make one unit of finished product. The company wants to keep an ending inventory of raw material equal to 55% of next month’s production needs. How many pounds of raw material should be purchased in each month?
4. The raw material costs $1.75 per pound. The company pays for 85% of its purchases during the month of purchase and the remainder in the following month. How much cash will be disbursed during each month for the purchase of raw material?
5. The projected cash balance on March 1 is $19,500. What is the estimated cash balance at the end of March? (Prepare a formal cash budget for the month of March.)

Answer 1

Cash collection:
Month	Jan	Feb	Mar	Apr	May	June
Sales	72000	57000	84000	130200	120000	192600
Collections:
Jan	57600	14400
Feb		45600	11400
Mar			67200	16800
Apr				104160	26040
may					96000	24000
June						154080
Total Collections	57600	60000	78600	120960	122040	178080
Production Budget:
Month	Jan	Feb	Mar	Apr	May	June
units sales	12000	9500	14000	21700	20000	32100
Add: Cl Stock	6650	9800	15190	14000	22470	0
total needs	18650	19300	29190	35700	42470	32100
Less:Op Stock	0	6650	9800	15190	14000	22470
Production reqd.	18650	12650	19390	20510	28470	9630
Raw material pounds purchased:
Month	Jan	Feb	Mar	Apr	May	June
Production reqd.	18650	12650	19390	20510	28470	9630
RM per unit (pound)	2	2	2	2	2	2
RM for production	37300	25300	38780	41020	56940	19260
Add: Cl Stock	13915	21329	22561	31317	10593	0
Total RM needed	51215	46629	61341	72337	67533	19260
Less:Op Stock	0	13915	21329	22561	31317	10593
RM purchased (pound)	51215	32714	40012	49776	36216	8667
Disbursed for Purchases of RM:
Month	Jan	Feb	Mar	Apr	May	June
RM purchased (pound)	51215	32714	40012	49776	36216	8667
Price per pound	1.75	1.75	1.75	1.75	1.75	1.75
RM Puchase Cost	89626.25	57249.5	70021	87108	63378	15167.25
Disbursements:
Jan	76182.3125	13443.9375
Feb		48662.075	8587.425
Mar			59517.85	10503.15
Apr				74041.8	13066.2
may					53871.3	9506.7
June						12892.1625
Total Disbursements	76182.3125	62106.0125	68105.275	84544.95	66937.5	22398.8625
Estimated Cash Balance at end of march:
Op Cash	19500
Add: Collections	78600
Total Cash available	98100
Less: Disbursements	68105.275
Closing Cash	29994.725