Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Alternate Demo Problem Twenty-Two
ABC Company started business on January 1, 20xx. The company
estimated that sales for the first six months would be as follows:
Month Units Dollars
January 10,000 $ 50,000
February 8,000 40,000
March 15,000 75,000
April 17,000 85,000
May 22,000 110,000
June 30,000 150,000
The company sells all items on account and expects collections of
accounts receivable to be as follows: 60% in the month of the sale, and the
remaining 40% in the month after the sale.
Required:
(a) Compute the expected cash collections during the months of January,
February, March, April, May and June.
(b) The company has decided that finished goods inventory at the end of
each month should ideally be equal to 40% of next month’s sales. What
should budgeted production be for each of the first four months?
(c) It takes two pounds of raw material to make one unit of finished
product. The company wants to keep an ending inventory of raw
material equal to 30% of next month’s production needs. How many
pounds of raw material should be purchased in each of the first three
months?
(d) The raw material costs $2 per pound. The company pays for 70% of its
purchases during the month of purchase and the remainder in the
following month. How much cash will be disbursed during the month of
March for the purchase of raw material?
(e) The projected cash balance on March 1 is $13,500. What is the
estimated cash balance at the end of the month? (Prepare a formal
cash budget for the month of March.)
Solution: Alternate Demo Problem Twenty-Two
(a)
Collections
Month Sales Jan. Feb. March April May June
Jan. $ 50,000 $30,000 $20,000
Note: 60% of sales collected in month of sale; 40% in the following month.
(b)
Jan. Feb. March April
Ending inventory 3,200 6,000 6,800 8,800
Note: Ending inventory is equal to 40% of next month’s sales (in units), and
beginning inventory is equal to last month’s ending inventory.
(c)
Jan. Feb. March
Ending inventory 6,480 (1) 9,480 11,400
Note: It takes two pounds of raw material to make one unit of product and
ending inventory should equal 30% of next month’s production.
(d)
Jan. Feb. March
March cash disbursement equals 70% of March purchases plus 30% of
February purchases.
Therefore, March cash disbursements equal:
(e)
ABC COMPANY
Cash Budget
For the Month of March 20xx
Beginning cash balance $13,500
