Question 2 Colter Company prepares monthly cash budgets. Relevant data from oper

Question

Question 2
Colter Company prepares monthly cash budgets. Relevant data from operating budgets for
2017 are as follows.
January February
Sales $360,000 $400,000
Direct materials purchases 120,000 125,000
Direct labour 90,000 100,000
Manufacturing overhead 70,000 75,000
Selling and administrative expenses 79,000 85,000
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 2016, $250,000; December 2016, $320,000.
? Purchases of direct materials: December 2016, $100,000.
? Other receipts: January—collection of December 31, 2016, notes receivable $15,000;
February—proceeds from sale of securities $6,000.
? Other disbursements: February—payment of $6,000 cash dividend.
The company's cash balance on January 1, 2017, is expected to be $60,000. The company
wants to maintain a minimum cash balance of $50,000.
Required
(a) Prepare schedules for (1) expected collections from customers and (2) expected

payments for direct materials purchases for January and February.
(b) Prepare a cash budget for January and February in columnar form.

Explanation / Answer

Schedule for Expected Collection from Customer Particulars January February Calculation Amount Calculation Amount Sales in repective month 50% of $360,000 $180,000.00 50% of $400,000 $200,000.00 Credit sale in November 20% of $250,000 $50,000.00 Credit Sale in December 30% of $320,000 $96,000.00 20% of $320,000 $64,000.00 Credit Sale in January 30% of $360,000 $108,000.00 Total Collection $326,000.00 $372,000.00 Schedule for Expected payment for Direct Material Particulars January February Calculation Amount Calculation Amount Direct Material Purchase for the month 60% of $120,000 $72,000.00 60% of $125,000 $75,000.00 Direct Material Purchase for January 40% of $120,000 $48,000.00 Direct Material Purchase for December 40% of $100,000 $40,000.00 Total Payment $112,000.00 $123,000.00 Cash Budget Particulars January February Calculation Amount Calculation Amount Opening Balance 60000 $51,000.00 Total Sales Collection Schedule 1 $326,000.00 Schedule 1 $372,000.00 Other Receipts Notes Receivable 15000 Sale of Securities 6000 Total Cash Receipts $401,000.00 $429,000.00 Cash Payment for Direct Material Schedule 2 $112,000.00 Schedule 2 $123,000.00 Direct Labour Given $90,000.00 Given $100,000.00 Manufacturing Expenses Given 70000 Given 75000 Selling and Admin Expenses Deduct $1000 - Non Cash 78000 Deduct $1000 - Non Cash 84000 Cash Dividend Payment 6000 Total Cash Payments $350,000.00 $388,000.00 Closing Balance $51,000.00 $41,000.00

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