Budgeting for Cash Collections and Cash Payments. Hershel’s Chocolate produces c

Question

Budgeting for Cash Collections and Cash Payments. Hershel’s Chocolate produces chocolate bars. The treasurer at Hershel’s Chocolate is preparing the cash budget and would like to know when cash collections from sales and cash payments for materials will occur. The dollar amount of the company’s quarterly sales and direct materials purchases are projected to be as follows (this information is the result of working the previous problems for Hershel’s Chocolate):

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? All sales are made on credit. The company expects to collect 60 percent of sales in the quarter of sale and 40 percent the quarter following the sale. Accounts receivable at the end of last year totaled $770,000, all of which will be collected during the first quarter of this coming year.

? All direct materials purchases are on credit. The company expects to pay 80 percent of purchases in the quarter of purchase and 20 percent the following quarter. Accounts payable at the end of last year totaled $257,000, all of which will be paid during the first quarter of this coming year.

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Figure 9.11

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Please show all the steps and write full explanations to the following questions:

a. Prepare a budget for cash collections from sales. Refer to the format shown at the top of Figure 9.11 "Cash Budget for Jerry’s Ice Cream".

b. Prepare a budget for cash payments for purchases of materials. Refer to the format shown in the middle section of Figure 9.11 "Cash Budget for Jerry’s Ice Cream".

c. How will the treasurer use this information?

1st 2nd 3rd 4th Sales $2,000,000 $2,100,000 $2,200,000 $2,425,000 Direct materials purchases $1,215,000 $1,276,125 $1,349,400 $1,417,575

Explanation / Answer

Budgeting for Cash Collections and Cash Payments. Hershel’s Chocolate produces c

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