Question

Question 2
Colter Company prepares monthly cash budgets. Relevant data from operating budgets for
2017 are as follows.
January February
Sales $360,000 $400,000
Direct materials purchases 120,000 125,000
Direct labour 90,000 100,000
Manufacturing overhead 70,000 75,000
Selling and administrative expenses 79,000 85,000
All sales are on account. Collections are expected to be 50% in the month of sale, 30% in
the first month following the sale, and 20% in the second month following the sale. Sixty
percent (60%) of direct materials purchases are paid in cash in the month of purchase, and
the balance due is paid in the month following the purchase. All other items above are paid
in the month incurred except for selling and administrative expenses that include $1,000 of
depreciation per month.
Other data:
? Credit sales: November 2016, $250,000; December 2016, $320,000.
? Purchases of direct materials: December 2016, $100,000.
? Other receipts: January—collection of December 31, 2016, notes receivable $15,000;
February—proceeds from sale of securities $6,000.
? Other disbursements: February—payment of $6,000 cash dividend.
The company's cash balance on January 1, 2017, is expected to be $60,000. The company
wants to maintain a minimum cash balance of $50,000.
Required
(a) Prepare schedules for (1) expected collections from customers and (2) expected

payments for direct materials purchases for January and February.
(b) Prepare a cash budget for January and February in columnar form.

Answer 1

Schedule for Expected Collection from Customer
Particulars	January		February
	Calculation	Amount	Calculation	Amount
Sales in repective month	50% of $360,000	$180,000.00	50% of $400,000	$200,000.00
Credit sale in November	20% of $250,000	$50,000.00
Credit Sale in December	30% of $320,000	$96,000.00	20% of $320,000	$64,000.00
Credit Sale in January			30% of $360,000	$108,000.00
Total Collection		$326,000.00		$372,000.00
Schedule for Expected payment for Direct Material
Particulars	January		February
	Calculation	Amount	Calculation	Amount
Direct Material Purchase for the month	60% of $120,000	$72,000.00	60% of $125,000	$75,000.00
Direct Material Purchase for January			40% of $120,000	$48,000.00
Direct Material Purchase for December	40% of $100,000	$40,000.00
Total Payment		$112,000.00		$123,000.00
Cash Budget
Particulars	January		February
	Calculation	Amount	Calculation	Amount
Opening Balance		60000		$51,000.00
Total Sales Collection	Schedule 1	$326,000.00	Schedule 1	$372,000.00
Other Receipts	Notes Receivable	15000	Sale of Securities	6000
Total Cash Receipts		$401,000.00		$429,000.00
Cash Payment for Direct Material	Schedule 2	$112,000.00	Schedule 2	$123,000.00
Direct Labour	Given	$90,000.00	Given	$100,000.00
Manufacturing Expenses	Given	70000	Given	75000
Selling and Admin Expenses	Deduct $1000 - Non Cash	78000	Deduct $1000 - Non Cash	84000
Cash Dividend Payment				6000
Total Cash Payments		$350,000.00		$388,000.00
Closing Balance		$51,000.00		$41,000.00