1. ] The PDC Company was described during the early part of this chapter. Refer
ID: 2639582 • Letter: 1
Question
1. ] The PDC Company was described during the early part of this chapter. Refer to the PDC Companys projected monthly operating schedules in Table 6.2. PDCs sales are projected to be $80,000 in September 2011.
[Note: An Excel spreadsheet for the PDC Company is available on the authors Web site for use by instructors.]
A. Prepare PDCs sales schedule, purchases schedule, and the wages schedule for August 2014.
B. Prepare a cash budget for August 2014 for the PDC Company and describe how the forecast affects the end of month cash balance.
Explanation / Answer
Part A
Sales Schedule: Schedule 1:
Sales Forecast Total sales = $92,000; Credit sales (40%) = $36,800; Cash sales (60%) = $55,200
Schedule 2: Cash Collections
Cash sales = $55,200; Collection of July’s credit sales = $46,000; Total collections = $101,200
Purchases Schedule:
Ending inventory at end of August is estimated as: Forecasted September sales = $80,000 times .8 of sales coverage times .7 to reflect cost of goods sold. Thus, ($80,000 x .8 x .7) = $44,800. PDC adds a $46,000 inventory cushion to get to the target ending inventory for August of: $90,800. Cost of goods sold for August is $64,400 (i.e., $92,000 x .7). Total inventory needed is $90,800 + $64,400 = $155,200
Schedule 3: Purchases
$155,200 total inventory needed minus $97,520 beginning inventory (i.e., ending inventory from July) = $57,680 purchases
Schedule 4: Disbursements for Purchases
Calculated as 50% of July’s purchases plus 50% of August’s purchases: ($67,620 x .5) + ($57,680 x .5) = $33,810 + $28,840 = $62,650
Wages and Commissions Schedule:
Schedule 5: Wages and Commissions
Fixed portion = $5,750. Commissions = 15% of August sales ($92,000 x .15) = $13,800. Total wages and commissions = $5,750 + $13,800 = $19,550
Schedule 6: Disbursements (Wages and Commissions)
Calculated as 50% of July’s total wages/commissions plus 50% of August’s total wages/commissions: ($23,000 x .5) + ($19,550 x .5) = $11,500 + $9,775 = $21,275
PART B
The beginning cash balance for August was $29,487. Total cash receipts less total cash disbursements for August were $8,075 ($101,200 - $93,125) resulting in an ending cash balance of $37,562.
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