Question

Clay Corporation has projected sales and production in units for the second quarter of the coming year as follows:

	April	May	June
Sales	55,000	47,000	65,000
Production	62,500	52,500	52,500

Cash-related production costs are budgeted at $5.5 per unit produced. Of these production costs, 30% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $150,000 per month. The accounts payable balance on March 31 totals $240,000, which will be paid in April. All units are sold on account for $14.5 each. Cash collections from sales are budgeted at 65% in the month of sale, 25% 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 $555,000 ($95,000 from February's sales and $460,000 from March’s sales).

Required:

a. . Prepare a schedule for each month showing budgeted cash disbursements for Clay Corporation. (Round your final answer to nearest whole dollar.)

b. Prepare a schedule for each month showing budgeted cash receipts for Clay Corporation. (Round your final answer to nearest whole dollar.)

Answer 1

a. Schedule for budgeted cash disbursements for Clay Corporation:

	April	May	June	Total
Opening balance paid	$240,000			$240,000
April month production	62,500 x $5.5 x 30%= $103,125	62,500 x $5.5 x 70%= $240,625		$343,750
May month production		52,500 x $5.5 x 30%=$86,625	52,500 x $5.5 x 70%= $202,125	$288,750
June month production			52,500 x $5.5 x 30%=$86,625	$86,625
Selling and administrative expenses	$150,000	$150,000	$150,000	$450,000
Total cash disbursements	$493,125	$477,250	$438,750	$1,409,125

b. Schedule for  budgeted cash receipts for Clay Corporation:

	April	May	June	Total
February's sales	$95,000			$95,000
March’s sales	$460,000/0.35 x 0.25 = 328,571	$460,000/0.35 x 0.10 = 131,429		$460,000
April’s sales	55,000 x 14.5 x .65 = 518,375	55,000 x 14.5 x .25 = 199,375	55,000 x 14.5 x .10 = 79,750	$797,500
May’s sales		47,000 x 14.5 x .65 = 442,975	47,000 x 14.5 x .25 = 170,375	$613,350
June’s sales			65,000 x 14.5 x .65 = 612,625	$612,625
Total cash receipts	$941,946	$773,779	$862,750	$2,578,475