Question

1.ABC Company started business on January 1, 20xx. The company estimated that sales for the first six months would be as follows:

Month	Units	Dollars
January	10,000	$ 50,000
February	8,000	40,000
March	15,000	75,000
April	17,000	85,000
May	22,000	110,000
June	30,000	150,000

The company sells all items on account and expects collections of accounts receivable to be as follows: 60% in the month of the sale, and the remaining 40% in the month after the sale.

Required:

1. Compute the expected cash collections during the months of January, February, March, April, May and June.
2. The company has decided that finished goods inventory at the end of each month should ideally be equal to 40% of next month’s sales. What should budgeted production be for each of the first four months?
3. It takes two pounds of raw material to make one unit of finished product. The company wants to keep an ending inventory of raw material equal to 30% of next month’s production needs. How many pounds of raw material should be purchased in each of the first three months?
4. The raw material costs $2 per pound. The company pays for 70% of its purchases during the month of purchase and the remainder in the following month. How much cash will be disbursed during the month of March for the purchase of raw material?
5. The projected cash balance on March 1 is $13,500. What is the estimated cash balance at the end of the month? (Prepare a formal cash budget for the month of March.)

Answer 1