Haas Company prepares monthly cash budgets. Relevant data from operating budgets

Question

Haas Company prepares monthly cash budgets. Relevant data from operating budgets for 2011 are:
January February
Sales $350,000 $400,000
Direct materials purchases 110,000 130,000
Direct labor 90,000 100,000
Manufacturing overhead 70,000 75,000
Selling and administrative expenses 79,000 86,000


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 2010, $260,000; December 2010, $320,000.
Purchases of direct materials: December 2010, $100,000.
Other receipts: January-Collection of December 31, 2010, notes receivable $15,000; February-Proceeds from sale of securities $6,000.
Other disbursements: February-Withdrawal of $5,000 cash for personal use of owner, Dewey Yaeger.
The company's cash balance on January 1, 2011, is expected to be $60,000. The company wants to maintain a minimum cash balance of $50,000.

Explanation / Answer

1)   Expected Collections From Customers
                                     January           February
November
260,000 x 20%               $52,000                 -
December
320,000 x 30%               $96,000       
320,000 x 20%                                      $64,000
January
350,000 x 50%             $175,000
350,000 x 30%                                     $105,000
February
400,000 x 50%                                     $200,000
Total Collection          $323,000            $369,000

2) Expected payment for direct materials

                                   January           February
December
100,000 x 40%               $40,000       
January
110,000 x 60%               $66,000
110,000 x 40%                                     $44,000
February
130,000 x 60%                                     $78,000   
Total payment             $106,000        $122,000

                                       Haas Company
                                        Cash Budget
                    For the month ending February 28, 2011
     
                                               January        February
Beginning cash balance           $60,000         $54,000
Add : Cash inflows
Collections from customer     $323,000       $369,000
Notes Receivables                    $15,000
Sale of securities                                            $6,000  
Total cash inflows                 $398,000      $375,000  
Total available cash              $458,000      $429,000  

Less : Cash outflows
Direct materials                   $106,000      $122,000
Direct labor                             $90,00      $100,000
Manufacturing overhead       $70,000        $75,000
S & A expenses                      $78,000       $85,000
Cash for personal use                                 $5,000  
Total cash outflows             $344,000     $387,000

Excess/(Shortage) of Cash
over disbursement             $54,000      $42,000

Borrowings                                 -               8,000
Repayments                                -                  -                   
Ending cash balance           $54,000       $50,000

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