Question

In: Accounting

Selling price is $15 per unit Sales by month: April 25,000 units May 50,000 units June...

  • 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 31st 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.

Solutions

Expert Solution

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

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