Question

Tracy is preparing her budget for next year and needs your assistance. Now that she has a better idea of what to expect now that she is in business full time, we want to begin having some of her ingredients in stock to avoid not being able to get the ingredients on time.

She is ready to prepare her budget for the first four months of 2021. She believes she will sell the following number of cupcakes each month:

Month	January	February	March	April
# of cupcakes	7250	8250	7350	7750

All cupcakes are sold each month and she has no beginning or ending cupcake inventory.

Tracy would like for you to create a cash collections budget if she sells each cupcake for $2.90 each. She anticipates that 75% of her sales will be cash sales and the remaining 25% will be on account. Of the 25% on account, she believes she will receive 65% the month of sales and 35% the second month. The beginning accounts receivable is $2,050.

Lastly, she would like for you to create a direct materials budget. She would like to keep 10% of next month’s ingredient inventory on hand at the end of each month. Each cupcake uses 7.5 oz. of material and the cost per ounce is $0.08. Her inventory on January 1 is 3,750 oz. and her presumed ending inventory on April 30^th is 3,300 oz. She pays for all materials in the month of purchase. Please complete a Direct Materials Budget and an Expected Cash Disbursement for Materials.

Prepare a one page paper where you give Tracy the requested budgets and explain how you determined the amounts.

Remember: Write the paper to Tracy as a business document.

Answer 1

Direct material budget ( working note 1)
	January	February	March	April
no. of cupcake can sell	7250	8250	7350	7750
material required 7.5 oz.	54375	61875	55125	58125
add - closing stock 10% of next month	6187.5	5512.5	5812.5	3300
less opening stock	(3750)	(6187.5)	(5512.5)	(5812.5)
quantity of material to be purchased	56812.5	61200	55425	55612.5
cost per ounce is $0.08	$0.08	$0.08	$0.08	$0.08
cost of material	$ 4545	$ 4896	$ 4434	$ 4449

cash budget
	January	February	March	April
no. of cup cake sales	7250	8250	7350	7750
toal sales @ 2.90	$ 21025	$ 23925	21315	22475
75% cash sales collection A	$ 15769	17944	15986	16856
credit sale collection B ( working note 2)	$5466	$5626	$5502	$5227
total cash collection (A+B)	$ 21235	$ 23570	$ 21488	$ 22083
less - cost of material (working note 1)	($ 4545)	(4896)	(4434)	(4449)
net receipt	$16690	$18674	$17054	$17634

credit sale cash collection (working note 2)	January	February	March	April
no. of cup cake sales	7250	8250	7350	7750
toal sales @ 2.90	$ 21025	$ 23925	21315	22475
25% credit sales	$ 5256	5824	5329	5619
65% cash collection on same month	$ 3416	$3786	$3464	$3652
35% next month	$ 2050	$1840	$2038	$1865
total cash collection of credit sales	$5466	$ 5626	$ 5502	$ 5227