Question

• Selling price is $15 per unit
• Sales by month:
  • April 25,000 units
  • May 50,000 units
  • June 40,000 units
  • July 30,000 units
  • August 20,000 units

Cash Collections

• 60% collected in month of sale
• 40% collected in the month after sale
• Accounts receivable at the end of March is $25,000 and it will be collected in April

Production Budget

• Ending inventory is 25% of next month’s budgeted sales
• On March 31^st there were 5,000 units on hand

Direct Materials Budget

• 5 pounds of material are required for each unit of product
• Ending inventory is 10% of the following month's production
• On March 31st there was 10,000 pounds of material on hand
• The cost of material is $0.50 per pound

Cash Disbursements

• 60% will be paid in the month of purchase
• 40% will be paid in the following month
• There was a balance in accounts payable on March 31st of $10,000 that will be paid in April

Cash Budget

• The April 1 cash balance is $50,000
• The company maintains a minimum cash balance of $70,000
• For April, May, and June there will be the following expenses:
  • Direct labor - $20,000, $22,000 and $24,000
  • Manufacturing overhead - $50,000, $75,000, and $60,000
  • Selling and administrative expenses - $60,125, $70,000, and $75,000
• A divided of $50,000 will be paid in April
• $300,000 in equipment purchases will be paid in May and $350,000 in June
• $2,000 of interest will be paid in May to repay a loan

Just the Cash Disbursements and Cash Budget need to be completed.

Answer 1

	April	May	June
Cash collections from credit sales:
From Accounts Receivable	$25,000
From April Sales ($15*25,000*60/100); ($15*25,000*40/100)	$225,000	$150,000
From May Sales ($15*50,000*60/100); ($15*50,000*40/100)		$450,000	$300,000
From June Sales ($15*40,000*60/100)			$360,000
Total Cash Collections	$250,000	$600,000	$660,000
	April	May	June
Budgeted Sales in Units	25,000	50,000	40,000
Add: Ending finished goods inventory (50,000*25/100); (40,000*25/100); (30,000*25/100)	12,500	10,000	7,500
Less: Beginning Finnished goods inventory (last month's ending inventory will be the beginning inventory in current month) (25,000*25/100)	5,000	12,500	10,000
Budgeted Production in Units (a)	32,500	47,500	37,500
Direct materials in pounds per unit (b)	5	5	5
Budgeted production in pounds (a*b)	162,500	237,500	187,500
Add: Ending direct mateials (237,500*10/100); (187,500*10/100); (30,000 + (25%*20,000) - 7,500 = 27,500*5*10/100)	23,750	18,750	13,750
Less: Beginning direct materials (last month's ending inventory will be the beginning inventory in current month)	10,000	23,750	18,750
Budgeted Purchases in Pounds (c )	176,250	232,500	182,500
Cost per pound (d)	$0.50	$0.50	$0.50
Budgeted Purchases in Dollars (c*d)	$88,125	$116,250	$91,250
Cash Disbursements:	April	May	June
Cash Payments for purchases:
Payments to Accounts Payable	$10,000
For April Purchases ($88,125*60/100); ($88,125*40/100)	$52,875	$35,250
For May Purchases ($116,250*60/100); ($116,250*40/100)		$69,750	$46,500
For June Purchases ($91,250*60/100)			$54,750
Tota Cash Disbursements for material purchases	$62,875	$105,000	$101,250
Cash Budget
	April	May	June	Total
Beginning Cash Balance	$50,000	$57,000	$83,000	$190,000
Add: Cash Receipts	$250,000	$600,000	$660,000	$1,510,000
Total available cash	$300,000	$657,000	$743,000	$1,700,000
Less: Cash Disbursements
For materials	($62,875)	($105,000)	($101,250)	($269,125)
Direct labor	($20,000)	($22,000)	($24,000)	($66,000)
Manufacturing overheads	($50,000)	($75,000)	($60,000)	($185,000)
Selling and administrative expenses	($60,125)	($70,000)	($75,000)	($205,125)
Dividends	($50,000)
Purchase of equipment		($300,000)	($350,000)
Interest Expense		($2,000)
Ending Cash Balance	$57,000	$83,000	$132,750