Presented below are selected budget data items for MikeN Corporation for a three

Question

Presented below are selected budget data items for MikeN Corporation for a three-month period:

Sales were $770,000 in August and $790,000 in September. Material usage was $115,000 in August and $118,000 in September. All sales are on account, and accounts receivable is historically collected 15% in the month of sale, 65% in the month following sales, and the remainder two months after the sale. Materials are paid for 40% in the month used and 60% the following month. All other expenses are paid in the month incurred. The cash balance was $35,000 at the beginning of October, and management wants to determine if the company will have enough cash to pay a year-end bonus.

Prepare a three-month cash budget, including a schedule for cash collections and material payments.

Sales
Direct materials
Direct labor
Variable overhead
Fixed overhead
Selling and admin. costs
Fixed loan payments OCTOBER
$820,000
$123,000
$90,000
$65,600
$140,000
$312,000
$155,000 NOVEMBER
$780,000
$119,000
$85,000
$62,400
$140,000
$310,000
$155,000 DECEMBER
$850,000
$125,000
$96,000
$68,000
$140,000
$315,000
$155,000

Explanation / Answer

Schedule for cash collection Aug Sep Oct Nov Dec Sales 770000 790000 820000 780000 850000 Collection 115500 500500 154000 118500 513500 158000 123000 533000 164000 117000 507000 127500 115500 619000 790500 808000 798500 115000 118000 123000 119000 125000 Schedule for materials payment material payment 46000 69000 47200 70800 49200 73800 47600 71400 50000 total 46000 116200 120000 121400 121400 Cash budget receipts Oct Nov Dec collection 790500 808000 798500 total 790500 808000 798500 payments Direct materials 120000 121400 121400 Direct labor 90000 85000 96000 Variable overhead 65600 62400 68000 Fixed overhead 140000 140000 140000 Selling and admin. costs 312000 310000 315000 Fixed loan payments 155000 155000 155000 total 882600 873800 895400 opening cash balance 35000 -57100 -122900 net cash balance -92100 -65800 -96900 closing cash balance -57100 -122900 -219800

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