In: Accounting
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.)
(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 | ||||||||||