CASE 1 MASTER BUDGET Colosimo Company started business on January 1, 2016. The c
ID: 2426789 • Letter: C
Question
CASE 1 MASTER BUDGET
Colosimo Company started business on January 1, 2016. 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:
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?
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?
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.)
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
Explanation / Answer
Compute pounds of raw material should be purchased in each of the first three months:
Jan
Feb
Mar
Apr
Units required (A)
10,000
8,000
15,000
17,000
Pounds of
raw material
needed for production (B) = (A) * 2
20,000
16,000
30,000
34,000
Ending inventory
30% of next month's production (C )
4,800
9,000
10,200
Total no. pounds
to be purchased
each month (D) = (B) + (C )
24,800
25,000
40,200
Compute the cash will be disbursed during the month of March for the purchase of raw material:
Jan
Feb
Mar
Apr
Total no. pounds
to be purchased
each month (D) = (B) + (C )
24,800
25,000
40,200
Cost per pound
of raw material
$ 2
$ 2
$ 2
Total purchases in dollars
$ 80,400
70% paid in the same
month of purchase
$ 56,280
Prepare estimated cash balance at the end of the month:
Details
Amount
Cash balance as on March 1
$ 13,500
Cash collections during March (Working note 1)
$ 61,000
Cash disbursement during the month
$ (56,280)
Estimated cash balance as on March 31
$ 18,220
Working note 1:
Jan
Feb
Mar
Estimated sales
$ 50,000
$ 40,000
$ 75,000
60 % Collections in the same month
$ 30,000
$ 24,000
$ 45,000
40 % Collections in the month after the sale
$ 20,000
$ 16,000
Cash collections
$ 61,000
Jan
Feb
Mar
Apr
Units required (A)
10,000
8,000
15,000
17,000
Pounds of
raw material
needed for production (B) = (A) * 2
20,000
16,000
30,000
34,000
Ending inventory
30% of next month's production (C )
4,800
9,000
10,200
Total no. pounds
to be purchased
each month (D) = (B) + (C )
24,800
25,000
40,200
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