Question

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PART C Roan’s manufacturing is preparing its cash budget for the first two months of the...

PART C

Roan’s manufacturing is preparing its cash budget for the first two months of the upcoming year. The following information concerns the company’s upcoming cash receipts and disbursements.

  • Sales are 65% cash and 35% credit. Credit sales are collected 30% in the month of sale and the remainder in the month after the sale. Actual sales in December were $51,000.
  • January sales are budgeted to be $60,000; February sales are budgeted to be $69,000
  • Actual purchases of direct materials in December were $25,500. Roan’s purchases of direct materials in January are budgeted to be $23,500 and $28,000 in February. All purchases are paid 30% in the month of purchase and 70% the following month.
  • Salaries and sales commissions are also paid 50% in the month earned (when the sales are made) and 50% the following month. Actual salaries in December were $8,000. Budgeted salaries for January are $9,000 and February budgeted salaries are $10,500. Sales commissions each month are 8% of that month’s sales.
  • Rent expense is $3,300 per month
  • Depreciation is $2,800 per month
  • The cash balance at the end of the prior year was $18,000
  • The company is required to maintain a cash balance of $10,000. If necessary, it can borrow in increments of $1,000 at 0% interest. So far, the company has not had to borrow.

Required:

  1. Prepare a schedule of
  1. cash collections
  2. budgeted cash payments for purchases of direct materials
  3. budgeted cash payments for operating expenses
  1. Cash budget for January and February

Solutions

Expert Solution

a.

Cash Collections budget
January February Total
Cash Sales $           39,000 $      44,850 $           83,850
Collection on credit sales $           18,795 $      21,945 $           40,740
Total Cash Collections $           57,795 $      66,795 $        124,590

b.

Cash Payment for Material Purchase Budget
January February Total
30% of current month DM Purchases $             7,050 $         8,400 $           15,450
70% of last month DM Purchases $           17,850 $      16,450 $           34,300
Total Cash Payments $           24,900 $      24,850 $           49,750

c.

Cash Payment for Operating Expenses Budget
January February Total
Variable Cash operating Expenses
Sales Commission December $             2,040 $             2,040
Sales Commission January $             2,400 $         2,400 $             4,800
Sales Commission February $         2,760 $             2,760
Total Variable Cash operating Expenses $             4,440 $         5,160 $             9,600
Fixed Cash operating Expenses
Sales Salaries December $             4,000 $             4,000
Sales Salaries January $             4,500 $         4,500 $             9,000
Sales Salaries February $         5,250 $             5,250
Rent Expense $             3,300 $         3,300 $             6,600
Total Fixed Cash operating Expenses $           11,800 $      13,050 $           24,850
Total Cash Payment for Operating Expenses $           16,240 $      18,210 $           34,450

d.

Cash Bugdet
January February Total
Beginning Cash Balance $           18,000 $      34,655 $           18,000
Plus Cash Collections from customers $           57,795 $      66,795 $         124,590
Total Cash Available $           75,795 $    101,450 $         142,590
Less Cash Payments
Direct Material Purchases $           24,900 $      24,850 $           49,750
Operating Expenses $           16,240 $      18,210 $           34,450
Total Cash Payment $           41,140 $      43,060 $           84,200
Ending Cash Balance $           34,655 $      58,390 $           58,390
Cash Collections budget
January February
Cash Sales =60000*65% =69000*65%
Collection on credit sales =60000*35%*30%+51000*35%*70% =69000*35%*30%+60000*35%*70%
Cash Payment for Material Purchase Budget
January February
30% of current month DM Purchases =23500*30% =28000*30%
70% of last month DM Purchases =25500*70% =23500*70%
Cash Payment for Operating Expenses Budget
January February
Variable Cash operating Expenses
Sales Commission December =51000*8%*50%
Sales Commission January =60000*8%*50% =60000*8%*50%
Sales Commission February =69000*8%*50%
Total Variable Cash operating Expenses
Fixed Cash operating Expenses
Sales Salaries December =8000*50%
Sales Salaries January =9000*50% =9000*50%
Sales Salaries February =10500*50%
Rent Expense 3300 3300

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