Derby Company prepares monthly cash budgets. Relevant data from operating budget
ID: 2571469 • Letter: D
Question
Derby Company prepares monthly cash budgets. Relevant data from operating budgets for 2017 are:
January
February
Sales
$350,000
$400,000
Direct materials purchases
110,000
120,000
Direct labor
85,000
115,000
Manufacturing overhead
60,000
75,000
Selling and administrative expenses
75,000
80,000
All sales are on account. Collections are expected to be:
60% in the month of sale,
25% in the first month following the sale, and
15% in the second month following the sale.
As to cash payments (disbursements):
30% of direct materials purchases are paid in cash in the month of purchase,
70% is paid in the month following the purchase.
All other items above are paid in the month incurred.
Depreciation has been excluded from manufacturing over-head and selling & admin expenses.
Other data:
1. Credit sales: November 2016, $200,000; December 2016, $290,000.
2. Purchases of direct materials: December 2016, $90,000.
3. Other receipts:
Jan - collection of Dec 31, 2016, interest receivable $3,000;
Feb - proceeds from sale of securities $5,000.
4. Other disbursements: Feb - payment of $20,000 for land.
The company’s cash balance on January 1, 2017, is expected to be $50,000. The company wants to maintain a minimum cash balance of $40,000.
Instructions
(a) Prepare schedules for:
(1) expected collections from customers and
(2) expected payments for direct materials purchases.
(b) Prepare a cash budget for January and February in columnar form.
(a) #1
Expected Collections from Customer
January
February
November ($200,000)
December (290,000)
January (350,000)
February (400,000)
Total Collections
(a) #2
Expected Payments for Direct Materials
January
February
December ($ 90,000)
January (110,000)
February (120,000)
Total Collections
Mercer Farm Supply Company
Budgeted Income Statement
For the Six Months Ending June 30, 2017
January
February
Beginning Cash Balance
$ 50,000
$ 49,500
ADD: Receipts:
Collection from customers (a) #1
Total Receipts
Total Available Cash
LESS: Disbursements:
Direct Materials (a) #2
Total Disbursements
Excess (deficiency) of Available Cash
over Cash Disbursements
Financing:
Ending Cash Balance
January
February
Sales
$350,000
$400,000
Direct materials purchases
110,000
120,000
Direct labor
85,000
115,000
Manufacturing overhead
60,000
75,000
Selling and administrative expenses
75,000
80,000
Explanation / Answer
(a) (1) Expected Collection from customers Debtors January February November $200,000 $30,000 December $290,000 $72,500 $43,500 January $350,000 $210,000 $87,500 February $400,000 $240,000 Total collections $312,500 $371,000 (a) (2) Expected payments for direct materials purchases Creditors January February December $90,000 $63,000 January $110,000 $33,000 $77,000 February $120,000 $36,000 Total payments $96,000 $113,000 (b) Mercer Farm Supply Company Budgeted Income Statement For the Six Months Ending June 30, 2017 January February Beginning Cash Balance $50,000 $49,500 Add: Receipts Collection from (a) #1 $312,500 $371,000 Interest receivable $3,000 Sale of securities $5,000 Total Receipts $315,500 $376,000 Total Available Cash $365,500 $425,500 Less: Disbursements Direct materials (a) #2 $96,000 $113,000 Direct labor $85,000 $115,000 Manufacturing overhead $60,000 $75,000 Selling and administrative expenses $75,000 $80,000 Payment for land $0 $20,000 Total Disbursements $316,000 $403,000 Excess (deficiency) of Available cash over cash disbursements $49,500 $22,500 Financing: Borrowings $0 $17,500 Repayments $0 Ending Balance $49,500 $40,000
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