Colosimo Company started business on January 1, 2017. The company estimated that sales for the first...

Colosimo Company started business on January 1, 2017. The company estimated that sales for the first six months would be as follows:

January - 10,000 units, $60,000

February - 8,000 units, $48,000

March - 15,000 units, $90,000

April - 17,000 units, $102,000

May - 22,000 units, $132,000

June - 30,000 units, $180,000

The company sells all items on account and expects collections of accounts receivable to be as follows: 65% in the month of the sale, and the remaining 35% in the month after the sale.

Required:

(a) Compute the expected cash collections during the months of January, February, March, April, May and June.

(b) The company has decided that finished goods inventory at the end of each month should ideally be equal to 45% of next month’s sales. What should budgeted production be for each month?

(c) It takes three pounds of raw material to make one unit of finished product. The company wants to keep an ending inventory of raw material equal to 40% of next month’s production needs. How many pounds of raw material should be purchased in each month?

(d) The raw material costs $2.75 per pound. The company pays for 75% of its purchases during the month of purchase and the remainder in the following month. How much cash will be disbursed during each month for the purchase of raw material?

(e) The projected cash balance on March 1 is $19,500. What is the estimated cash balance at the end of the month? (Prepare a formal cash budget for the month of March.)

Expert Solution

(a)	Expected cash collections:
			Jan	Feb	Mar	Apr	May	June
	Jan sales
	65% in Jan-60000*65%		39000
	35% in Feb-60000*35%			21000
	Feb sales
	65% in Feb-48000*65%			31200
	35% in Mar-48000*35%				16800
	Mar sales
	65% in Mar-90000*65%				58500
	35% in Apr-90000*35%					31500
	Apr Sales
	65% in Apr-102000*65%					66300
	35% in May-102000*35%						35700
	May sales
	65% in May-132000*65%						85800
	35% in June-132000*35%							46200
	June Sales
	65% in June-180000*65%							117000
			39000	52200	75300	97800	121500	163200

(b)	Budgeted Production in units
			Jan	Feb	Mar	Apr	May
	Sales		10000	8000	15000	17000	22000
	Add: Ending inventory-Finished goods (Note:1)		3600	6750	7650	9900	13500
			13600	14750	22650	26900	35500
	Less: Beginning inventory Finished goods (Note:2)		0	3600	6750	7650	9900
	Units to be produced		13600	11150	15900	19250	25600

	Note:1-Ending inventory of finished goods:
	finished goods inventory at the end of each month should ideally be equal to 45% of next month’s sales
			Jan	Feb	Mar	Apr	May
	Next month sale		8000	15000	17000	22000	30000
	Ending inventory-45%		3600	6750	7650	9900	13500

	Note:2-Beginning inventory of finished goods:
	For Jan,Beginning inventory is 0,Sinnce the operations started on Jan.
	For others,Ending inventory of previous month should be the beginning inventory

	Note:It is not possible to prepae a production budget for June since there is no information regarding budgeted sales for July.

©	Raw material purchase budget
			Jan	Feb	Mar	Apr	May
	Units to be produced		13600	11150	15900	19250	25600
	Raw material required per unit		3	3	3	3	3
	Production need		40800	33450	47700	57750	76800
	Add: Ending inventory-Raw material (Note:1)		16320	13380	19080	23100	30720
			57120	46830	66780	80850	107520
	Less: Beginning inventory- Raw material (Note:2)		0	16320	13380	19080	23100
	Raw material to be purchased		57120	30510	53400	61770	84420

	Note:1-Ending inventory of Raw material:
	ending inventory of raw material equal to 40% of next month’s production needs
			Jan	Feb	Mar	Apr	May
	Next month production needs		40800	33450	47700	57750	76800
	Ending inventory-40%		16320	13380	19080	23100	30720

	Note:2-Beginning inventory of raw material:
	For Jan,Beginning inventory is 0,Since the operations started on Jan.
	For others,Ending inventory of previous month should be the beginning inventory

(d)
			Jan	Feb	Mar	Apr	May
	Credit Purchase:
	Raw material to be purchased in pound		57120	30510	53400	61770	84420
	Cost per pound ($)		2.75	2.75	2.75	2.75	2.75
	Purchase in $		157080	83902.5	146850	169867.5	232155
	Cash disbursement:
	75% during the month of purhase		117810	62926.88	110137.5	127400.6	174116.3
	25% during next month			39270	20975.63	36712.5	42466.88
	Total		117810	102196.9	131113.1	164113.1	216583.1

(e)		Cash Budget
			March
	Beginning balance (A)		19500
	Add: receipts
	Collection from Sales [Refer Part (a)]		75300

	Total cash receipts (B)		75300

	Payment towards purchases [Refer part (d)]		131113.1
	Toal cash payment ©		131113.1
	Closing balance (A)+(B)-©		-36313.1

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