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In: Accounting

TO Industries prepares monthly cash budgets. The following budget information is available for April and May...

TO Industries prepares monthly cash budgets. The following budget information is available for April and May 2019:

April

May

Sales

$650,000

$700,000

Direct material purchases

220,000

240,000

Direct labor

175,000

180,000

Manufacturing overhead

120,000

130,000

Selling and administrative expenses

150,000

150,000

All sales are credit sales. The company expects to collect 60% from customers in the month of the sale and the remaining 40% in first month following the sale. The company purchases direct materials on account. The company pays for 75% of the purchases in the month of the purchases and the remaining 25% in the first month following the purchase. Direct labor, manufacturing overhead, and selling and administrative expenses are paid in cash in the month incurred.

Additional information:

  • March 2019 credit sales were $600,000
  • March 2019 purchases of direct materials were $200,000
  • The company’s cash balance on April 1, 2019 is expected to be $90,000
  • The company wants to maintain a minimum cash balance of $80,000 and has a line of credit in the amount of 1,000,000, with an annual interest rate of 6%, available to borrow if the budgeted cash balance falls below that level. Any amounts borrowed on the line of credit at the end of a month require a cash interest payment in the subsequent month. If the ending cash balance in a month exceeds the minimum balance, the excess amount is used to repay any amounts borrowed on the line of credit.

Required

  1. Prepare a schedule of cash collections from credit sales for April and May 2019.
  2. Prepare a schedule of cash disbursements for direct material purchases for April and May 2019.
  3. Prepare a cash budget for April and May 2019 in columnar format.

Solutions

Expert Solution

Particulars March April May June
Sales 600000 650000 700000
Collection in same month of sale 360000 390000 420000 -
(600000*60% (650000*60% (700000*60%
Collections in next month 240000 156000 280000
(600000*40% (650000*40% (700000*40%
Schedule of Cash collections for credit Sales from April and May 2019
Particulars April May
March Sales $        240,000.00 -
April Sales $        390,000.00 $        156,000.00
June Sales $        420,000.00
Cash collected during the period $       630,000.00 $       576,000.00
Schedule of Cash disbursements for direct material purchases for April and May 2019
Particulars March April May June
Purchases 200000 220000 240000
Collection in same month of sale 150000 165000 180000 -
(200000*75% (220000*75% (240000*75%
Collections in next month 50000 55000 60000
(200000*25%) (220000*25% (240000*25%
Particulars April May
March Purchases $          50,000.00 -
April Purchases $        165,000.00 $          55,000.00
June Purchases $        180,000.00
Cash collected during the period $       215,000.00 $       235,000.00
Cash Budhet for April and May 2019
April May
Cash Balance as on April 1 80000 80000
Receipt from Sales $        630,000.00 $        576,000.00
Less :Payments for
Direct Material $      (215,000.00) $      (235,000.00)
Direct Labor $      (175,000.00) $      (180,000.00)
Manufacturing Overhead $      (120,000.00) $      (130,000.00)
Selling and Admin Expenses $      (150,000.00) $      (150,000.00)
Interest Paid $               150.00 (30000*6%*1/12)
Closing Cash Balance $          50,000.00 $        (38,850.00)
Cash borrowed to maintain minimum balance $          30,000.00 $        118,850.00
Net Cash Balance $          80,000.00 $          80,000.00

ekkarill92 answered 11 months ago
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