January February (a) Expected Collections from Customers January February Expect

Question

January

February

(a)

Expected Collections from Customers

January

February

Expected Payments for Direct Materials

January

February

Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2014 are:

January

February

Sales $356,650 $407,600 Direct materials purchases 112,090 132,470 Direct labor 91,710 101,900 Manufacturing overhead 71,330 76,425 Selling and administrative expenses 80,501 87,634
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 $1,019 of depreciation per month.

Other data:
1. Credit sales: November 2013, $264,940; December 2013, $326,080. 2. Purchases of direct materials: December 2013, $101,900. 3. Other receipts: January—Collection of December 31, 2013, notes receivable $15,285;                       February—Proceeds from sale of securities $6,114. 4. Other disbursements: February—Payment of $5,095 cash dividend.
The company’s cash balance on January 1, 2014, is expected to be $61,140. The company wants to maintain a minimum cash balance of $50,950.

Explanation / Answer

January Cash Budget Beginning Balance $      61,140 Cash collected from november sales = 20% x 264940 $            52,988 Cash collected from december sales = 30% x 326080 $            97,824 Cash collected from January sales = 50% x 356650 $         178,325 Notes receivable $            15,285 Total Cash collected $    344,422 Cash Disbursements Cash Payments from Purchases from December = 40% x 101,900 $            40,760 Cash Payments from purchases from January = 60% x 112,090 $            67,254 Direct labor $            91,710 Manufacturing overhead $            71,330 selling and administrative expenses = 80501 - 1019 $            79,482 Total Disbursements $    350,536 Total ending balance = 61140 + 344422 - 350536 $      55,026 February Cash Budget Beginning balance $      55,026 Cash collected from december sales = 20% x 326080 $            65,216 Cash collected from January sales = 30% x 356650 $         106,995 Cash collected from February sales = 50% x 407,600 $         203,800 Proceeds from sale of securities $              6,114 Total Cash collected $    382,125 Cash Disbursements Cash Payments from purchases from January = 40% x 112,090 $            44,836 Cash Payments from purchases from February = 60% x 132470 $            79,482 Direct labor $         101,900 Manufacturing overhead $            76,425 Selling and administrative expenses = 87634 - 1019 $            86,615 cash dividend $              5,095 Total Disbursements $    394,353 Total ending balance = 55026 + 382125 - 394353 $      42,798 Since the ending balance for Februray is 42798 and minimum cash balance required is 50950. Colter Company have to take a short term loan of 50950 - 42798 $              8,152

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