Question

Part I                                                                                                                   55 marks

The data below pertains to the third quarter of Ontario Company which manufactures toys.

Below is the estimated sales (in units):

July	30,000
August	60,000
September	80,000
October	40,000
November	10,000
December	20,000

1. The selling price of the toys is $10 per unit.
2. All sales are on account. Based on past experience, sales are collected in the following pattern:

Month of sale	25%
Month following sale	70%
Uncollectible	5%

3. Sales for June totaled $400,000.
4. The company maintains finished goods inventories equal to 20% of the following month's sales. This requirement will be met at the end of June.
5. Each toy requires 3 pounds of raw materials.
6. The company requires that the ending inventory of raw materials be equal to 20% of the following month's production needs.
7. The raw material costs $1.50 per pound.
8. 40% of a month's purchases of raw materials is paid for in the month of purchase; the remainder is paid for in the following month.

1. The accounts payable on June 30 will be $80,000.

Required

1. A schedule of expected cash collections                                           
2. A cash budget                                                                                    

Answer 1

Please note opening cash balance is not given in question for cash budget

	Sales Budget
		July	August	September	Quarter
	Budgeted Unit sales	30,000	60,000	80,000	170,000
	Selling price per unit	$10	$10	$10	$10
	Budgeted Sales	$300,000	$600,000	$800,000	$1,700,000
1	Schedule of Cash collected from Customers
		July	August	September	Quarter
	June sales(70% of $400,000)	$280,000			$280,000
	July sales	$75,000	$210,000		$285,000
	August sales		$150,000	$420,000	$570,000
	September sales			$200,000	$200,000
	Total Cash Collections	$355,000	$360,000	$620,000	$1,335,000
	Production Budget
		July	August	September	Quarter	October	November
	Sales	30,000	60,000	80,000	170,000	40,000	10,000
	Add : Closing stock ( 20% of next month sales)	12,000	16,000	8,000	8,000	2,000
	Total Needs	42,000	76,000	88,000	178,000	42,000
	Less Opening Stock	6,000	12,000	16,000	6,000	8,000
	Budgeted Production	36,000	64,000	72,000	172,000	34,000
	Material Purchase Budget
		July	August	September	Quarter	October
	Production	36,000	64,000	72,000	172,000	34,000
	Direct material needed per unit	3	3	3	3	3
	Total Direct material requirement ( in pounds)	108,000	192,000	216,000	516,000	102,000
	Add : Closing stock (20% of next month requirement)	38,400	43,200	20,400	20,400
	Total Needs	146,400	235,200	236,400	536,400
	Less Opening Stock	21,600	38,400	43,200	21,600
	Budgeted Purchase (Units)	124,800	196,800	193,200	514,800
	Cost per pound	$1.50	$1.50	$1.50	$1.50
	Budgeted Direct material purchase	$187,200	$295,200	$289,800	$772,200
	Schedule of Cash payment for purchases
		July	August	September	Quarter
	Accounts Payable Beginning	$80,000			$80,000
	July purchase	$74,880	$112,320		$187,200
	August purchase		$118,080	$177,120	$295,200
	September purchase			$115,920	$115,920
	Total Cash Payments	$154,880	$230,400	$293,040	$678,320
2	Ontario Company
	Cash Budget
	For the Three months Ended September 30
		July	August	September	Quarter
	Opening balance		$200,120	$329,720
	Receipt of Cash
	Collection from Customers	$355,000	$360,000	$620,000	$1,335,000
	Cash available for disbursement	$355,000	$560,120	$949,720	$1,335,000
	Less : Cash disbursements
	Merchandise purchase	$154,880	$230,400	$293,040	$678,320
	Cash paid for disbursements	$154,880	$230,400	$293,040	$678,320
	Ending cash balance	$200,120	$329,720	$656,680	$656,680

Budgeted Unit sales Selling price per unit Budgeted Sales Sales Budget July 30,000 $100 $300,000 August 60,000 $10 $600,000 September Quarter 80,000 170,000 $100 $10 $800,000 $1,700,000 Schedule of Cash collected from Customers July August June sales(70% of $400,000) $280,000 July sales $75,000 $210,000 August sales $150,000 September sales Total Cash Collections $355,000 $360,000 September Quarter $280,000 $285,000 $420,000 $570,000 $200,000 $200,000 $620,000 $1,335,000 Production Budget July Sales 30,000 Add: Closing stock ( 20% of next month sales) 12,000 Total Needs 42,000 Less Opening Stock 6,000 Budgeted Production 36,000 August 60,000 16,000 76,000 12,000 64,000 September 80,000 8,000 88,000 16,000 72,000 Quarter 170,000 8,000 178,000 6,000 172,000 October November 40,000 10,000 2,000 42,000 8,000 34,000 August 64,000 September 72,000 Quarter 172,000 October 34,000 102,000 Material Purchase Budget July Production 36,000 Direct material needed per unit Total Direct material requirement (in pounds) 108,000 Add: Closing stock (20% of next month requirement) 38,400 Total Needs 146,400 Less Opening Stock 21,600 Budgeted Purchase (Units) 124,800 Cost per pound $1.50 Budgeted Direct material purchase $187,200 192,000 43,200 235,200 38,400 196,800 216,000 20,400 236,400 43,200 193,200 $1.50 $289,800 516,000 20,400 536,400 21,600 514,800 $1.50 $772,200 $1.50 $295,200 September Schedule of Cash payment for purchases July August Accounts Payable Beginning $80,000 July purchase $74,880 $112,320 August purchase $118,080 September purchase Total Cash Payments $154,880 $230,400 Quarter $80,000 $187,200 $295,200 $115,920 $678,320 $177,120 $115,920 $293,040 Quarter September $329,720 Ontario Company Cash Budget For the Three months Ended September 30 July August Opening balance $200,120 Receipt of Cash Collection from Customers $355,000 $360,000 Cash available for disbursement $355,000 $560,120 Less : Cash disbursements Merchandise purchase $154,880 $230,400 $620,000 $1,335,000 $949,720 $1,335,000 $293,040 $678,320 Cash paid for disbursements Ending cash balance $154,880 $200,120 $230,400 $329,720 $293,040 $656,680 $678,320 $656,680