Question

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

2. Cash budget for January and February

Answer 1

ANSWER

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

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