The controller of Harrington Company estimates sales and production for the firs
ID: 2438646 • Letter: T
Question
The controller of Harrington Company estimates sales and production for the first four months of 2016 as follows:
Sales are 40% cash and 60% on account, and 60% of credit sales are collected in the month of the sale. In the month after the sale, 40% of credit sales are collected. It takes 4 kg of direct material to produce a finished unit, and direct materials cost $5 per kg. All direct materials purchases are on account, and are paid as follows: 40% in the month of the purchase, 60% the following month. Ending direct materials inventory for each month is 40% of the next month’s production needs.
January’s beginning materials inventory is 1,648 kg. Suppose that both accounts receivable and accounts payable are zero at the beginning of January.
Answer the following questions:
Answer the following questions:
What are cash payments on account for February? (Round answer to 0 decimal places, e.g. 125.)
What is the ending balance in accounts payable for March? (Round answer to 0 decimal places, e.g. 125.)
What is the cash balance for the period January–March? (Round answer to 0 decimal places, e.g. 125.)
January February March April Sales $30,200 $42,900 $54,800 $27,800 Production in units 1,030 1,550 2,170 2,590Explanation / Answer
1.Cash payments on account for February=$ 29240( see working note 1)
2. Ending balance in accounts payable for March=$28056( See working Note 2)
3. Cash Balance for the period Jan-March
Particulars
January
February
March
Cash sales
$ 12080
$ 17160
$ 21920
Collection from current month
Credit sales
$ 10872
$ 15444
$ 19728
Collection from debtors(i.e credit
Sales of previous month)
$ 7248
$ 10296
Total Receipts( A )
$ 22952
$ 39852
$ 51944
Cash Payments for current month
Credit purchases
$ 9904
$ 14384
$ 18704
Cash payments for previous month’s
Credit purchases
$ 14856
$ 21576
Total Payments( B )
$ 9904
$ 29240
$ 40280
Balance Cash( A- B)
$ 13048
$ 10612
$ 11664
Working Note
1)
January
February
March
Required for production
4120 kg
6200 kg
8680 kg
Add: Closing Stock
2489 kg
3472 kg
4144 kg
Less:Opening Stock
(1648kg)
(2480kg)
(3472kg)
Purchases
Total Purchase Cost
4952 kg
$24760
7192 kg
$35960
9352 kg
$46760
Cash Payments on account for February are:
Cash payments made for Credit Purchases of January($ 24760*0.6)=$ 14856
Cash payments made for Credit Purchases of February( $ 35960*0.4)=$ 14384
Total Payments made on account=$14856+ $ 14384= $29240
2)Ending balance in accounts payable for March:
March’s Purchases= 9352 kg*$ 5/kg= $ 46760
Balance payable in end of March= $ 46760* 0.6= $ 28056
Particulars
January
February
March
Cash sales
$ 12080
$ 17160
$ 21920
Collection from current month
Credit sales
$ 10872
$ 15444
$ 19728
Collection from debtors(i.e credit
Sales of previous month)
$ 7248
$ 10296
Total Receipts( A )
$ 22952
$ 39852
$ 51944
Cash Payments for current month
Credit purchases
$ 9904
$ 14384
$ 18704
Cash payments for previous month’s
Credit purchases
$ 14856
$ 21576
Total Payments( B )
$ 9904
$ 29240
$ 40280
Balance Cash( A- B)
$ 13048
$ 10612
$ 11664
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