Question

ABC Inc. has projected sales and production in units for the second quarter of the coming year as follows:

	April	May	June
sales.......	50,000	40,000	60,000
production.....	60,000	50,000	50,000

cash related production costs are budgeted at $5 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $100,000 per month. The accounts payable balance on March 31 totals $190,000, which will be paid in April.

All units are sold on account for $14 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totaled $500,000 ($90,000 from Feb. sales and $41,000 from March's sales).

1. prepare a schedule for each month showing budgeted cash disbursements

2. prepare a schedule for each month showing budgeted cash receipts

provide answers in detail.

Answer 1

Solution 1:

Schedule of Budgeted Cash Disbursement
	April	May	June
Production units	60000	50000	50000
Cost per unit	$5.00	$5.00	$5.00
Total Production costs	$300,000.00	$250,000.00	$250,000.00
Payments: (40% in same month and 60% in the next month):
For Accounts Payable on March 31	$190,000.00
For April Cost of Production	$120,000.00	$180,000.00
For May Cost of Production		$100,000.00	$150,000.00
For June Cost of Production			$100,000.00
Payment for Selling and adm. Expenses	$100,000.00	$100,000.00	$100,000.00
Total Budgeted Cash Disbursements	$410,000.00	$380,000.00	$350,000.00

Solution 2:

Schedule of Budgeted Cash Receipts
	April	May	June
Sales units	50000	40000	60000
Sale price per unit	$14.00	$14.00	$14.00
Total sales	$700,000.00	$560,000.00	$840,000.00
Receipts: (60% in same month and 30% in the next month and 10% in second month):
From Accounts receivable of Feb sales	$90,000.00
From Accounts receivable of March sales (30:10)	$307,500.00	$102,500.00
For April Sales	$420,000.00	$210,000.00	$70,000.00
For May Sales		$336,000.00	$168,000.00
For June Sales			$504,000.00
Total Budgeted Cash Receipts	$817,500.00	$648,500.00	$742,000.00