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	7200	8200	7400	7700

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 $2.80 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 $2,000.

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 oz. of material and the cost per ounce is $0.12. Her inventory on January 1 is 3,700 oz. and her presumed ending inventory on April 30^th is 3,350 oz. She pays for all materials in the month of purchase. Please complete a Direct Materials Budget and an Expected Cash Disbursement for Materials.

Answer 1

Material Budget is prepared on the basis of Company's production requirement and it's requirements of keeping the inventory.

Direct Material budget is represented below.

Particulars	January	February	March	April
Material Required for Production@ 7 oz per cake	50400	57400	51800	53900
Add: Closing stock @ 10% of next months production requirement	5740	5180	5390	3350
Less: opening stock	3700	5740	5180	5390
Quantity of material to be purchased	52440	56840	52010	51860

Note: 1.Closing inventory is kept equal to 10% of next months production.

2. Closing inventory of every month becomes equal to opening inventory of next month.

Total Purchase requirement in terms of cost is calculated below:

Particulars	Amount in $
Purchases for the month of January (.12x52440)	6293
Purchases for the month of February (.12x 56840)	6821
Purchases for the month of March (.12x 52010)	6241
Purchases for the month of April	6223
Total cost of Purchase	25578

Cash budget on the basis of above information is prepared as below.

Particulars	January	February	March	April
Collection
Sales in Cash (75 % of sales @2.8 per unit)	15120	17220	15540	16170
Sales in account (65% in same month)	3276	3731	3367	3504
Sales on account (35 % next month)	2000	1764	2009	1813
Total collection (A)	20396	22715	20916	21487
Payments
Raw material Purchases (B)	6293	6821	6241	6223
Net Receipts (A- B)	14103	15894	14675	15264