Question

For the second quarter of the following year Cloaks Company has projected sales and production in units as follows:

	Jan	Feb	Mar
Sales	56,000	58,000	63,000
Production	60,000	55,000	56,000

Cash-related production costs are budgeted at $8 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the next month. $170,000 per month will account for Selling and administrative expenses. On January 31 the accounts payable balance totals $210,000, which will be paid in February.

All units are sold on account for $12 each. Cash collections from sales are budgeted at 60% in the month of sale, 20% in the month following the month of sale, and the remaining 20% in the second month following the month of sale. On January 1 accounts receivable totaled $630,000 ($100,000 from November’s sales and the remaining from December).

Required:

1. Prepare a schedule for each month showing budgeted cash disbursements for Cloaks Company.                                                                                             (8 marks)

2.       Prepare a schedule for each month showing budgeted cash receipts for Cloaks Company

Answer 1

Solution:

1.

	Jan	Feb	Mar
Production cost	$480,000 (60,000 x $8)	$440,000 (55,000 x 8)	448,000 (56,000 x 8)
Cash Disbursement
Production costs this month 40%	192,000 ( 480,000 x 40%)	176,000 (440,000 x 40%)	179,200 (448,000 x 40%)
Production costs prior month	210,000	288,000 (480,000 x 60%)	264,000 (440,000 x 60%)
Selling and administrative	170,000	170,000	170,000
Total Distribution	572,000 (192000+210000+170000)	634,000 (176000+288000+170000)	613,200 (179200+264000+170000)

2.

	Jan	Feb	March
Sales unit	56,000	58,000	63,000
Sales price	12	12	12
Total sales	$672,000 (56000 x 12)	$696,000 (58000 x 12)	$756,000 (63,000 x 12)
Cash receipts
Nov sales	100,000	0	0
Dec sales(630000-100000)	265,000 (530,000 x 20/40)	265,000 (530,000x 20/40)	0
Jan sales	403,200 (672,000 x 60%)	$134,400 (672000x20%)	134,400 (672,000 x 20%)
Feb sales		417,600 (696000 x 60%)	139,200 (696,000 x 20 %)
March sales			453,600 (756,000 x 60%)
Total receipts	768,200	817,000	727,200