Clay Company has projected sales and production in units for the second quarter
ID: 2467729 • Letter: C
Question
Clay Company has projected sales and production in units for the second quarter of the coming year as follows: Cash-related production costs are budgeted at $5 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and administrative expenses will amount to $100,000 per month. The accounts payable balance on March 31 totals $190,000, which will be paid in April. All units are sold on account for $14 each. Cash collections from sales are budgeted at 60% in the month of sale, 30% in the month following the month of sale, and the remaining 10% in the second month following the month of sale. Accounts receivable on April 1 totaled $500,000 $(90,000 from February's sales and the remainder from March). Prepare a schedule for each month showing budgeted cash disbursements for the Clay Company. Prepare a schedule for each month showing budgeted cash receipts for Clay Company.Explanation / Answer
Solution:
1) Schedule for budgeted cash disbursements for each month
Clay Company
Schedule for budgeted cash disbursements
April
May
June
Total Cash Disbursement for Production Cost (Note 1)
$120,000
$280,000
$250,000
Selling and Administrative Expenses
$100,000
$100,000
$100,000
Payment of Accounts Payable of March 31
$190,000
$0
$0
Total Budgeted Cash Disbursements
$410,000
$380,000
$350,000
Note 1: Calculation of Total Cash Disbursement for Production Cost
April
May
June
Production
60,000
50,000
50,000
Cash Production Cost @ $5 per unit
$300,000
$250,000
$250,000
Cash Disbursement for Production Cost
- 40% are paid in the month
$120,000
$100,000
$100,000
- 60% in the next month
$180,000
$150,000
Total Cash Disbursement for Production Cost
$120,000
$280,000
$250,000
2) Schedule for budgeted cash receipts for each month
Clay Company
Schedule for budgeted cash disbursements
April
May
June
Budgeted Sales Units
50,000
40,000
60,000
Budgeted Credit Sales @ $14 per unit
$700,000
$560,000
$840,000
Schedule of Collection from Credit Sales
- 60% in the month of sale
$420,000
$336,000
$504,000
- 30% in the following month of sale
$0
$210,000
$168,000
- 10% in the second month following the sales
$0
$0
$70,000
30% of March Month Sales are collected in April (410,000 x 0.3 / 0.4)
$307,500
$0
$0
10% of March Month Sales are collected in April (410,000 x 0.1 / 0.4)
$0
$102,500
$0
10% of February Month Sales are collected in April
$90,000
$0
$0
Total Budgeted Cash Receipts
$817,500
$648,500
$742,000
Clay Company
Schedule for budgeted cash disbursements
April
May
June
Total Cash Disbursement for Production Cost (Note 1)
$120,000
$280,000
$250,000
Selling and Administrative Expenses
$100,000
$100,000
$100,000
Payment of Accounts Payable of March 31
$190,000
$0
$0
Total Budgeted Cash Disbursements
$410,000
$380,000
$350,000
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