TO Industries prepares monthly cash budgets. The following budget information is
ID: 2513772 • Letter: T
Question
TO Industries prepares monthly cash budgets. The following budget information is available for July and August 2017:
July
August
Sales
$700,000
$800,000
Direct material purchases
220,000
240,000
Direct labor
200,000
230,000
Manufacturing overhead
120,000
150,000
Selling and administrative expenses
150,000
160,000
All sales are credit sales. The company expects to collect 60% from customers in the month of the sale and the remaining 40% in first month following the sale. The company purchases direct materials on account. The company pays for 70% of the purchases in the month of the purchases and the remaining 30% in the first month following the purchase. Direct labor, manufacturing overhead, and selling and administrative expenses are paid in cash in the month incurred.
Additional information:
June 2017 credit sales were $580,000
June 2017 purchases of direct materials were $180,000
The company’s cash balance on July 1, 2017 is expected to be $100,000
The company wants to maintain a minimum cash balance of $80,000 and has a line of credit in the amount of 1,000,000 available to borrow if the budgeted cash balance falls below that level
Required
Prepare a schedule of cash collections from credit sales for July and August 2017.
Prepare a schedule of cash disbursements for direct material purchases for July and August 2017.
Prepare a cash budget for July and August 2017 in columnar format.
July
August
Sales
$700,000
$800,000
Direct material purchases
220,000
240,000
Direct labor
200,000
230,000
Manufacturing overhead
120,000
150,000
Selling and administrative expenses
150,000
160,000
Explanation / Answer
schedule of cash collection
cash collection
July
August
40% of June sale
232000
280000
60% of the month sale
420000
480000
total cash collection
652000
760000
schedule of payment to direct material purchase
cash disbursement
30% of the previous month purchase
54000
66000
70% of the month sale
154000
168000
total cash disbursement to direct material
208000
234000
cash budget
july
august
opening balance of cash
100000
80000
total cash collection
652000
760000
total cash available
752000
840000
less payment
direct material
208000
234000
direct labor
200000
230000
manufacturing overhead
120000
150000
selling and administrative expenses
150000
160000
total of cash disbursement
678000
774000
excess or deficiency of cash
74000
66000
borrowing/ repayment
6000
14000
Minimum cash balance
80000
80000
schedule of cash collection
cash collection
July
August
40% of June sale
232000
280000
60% of the month sale
420000
480000
total cash collection
652000
760000
schedule of payment to direct material purchase
cash disbursement
30% of the previous month purchase
54000
66000
70% of the month sale
154000
168000
total cash disbursement to direct material
208000
234000
cash budget
july
august
opening balance of cash
100000
80000
total cash collection
652000
760000
total cash available
752000
840000
less payment
direct material
208000
234000
direct labor
200000
230000
manufacturing overhead
120000
150000
selling and administrative expenses
150000
160000
total of cash disbursement
678000
774000
excess or deficiency of cash
74000
66000
borrowing/ repayment
6000
14000
Minimum cash balance
80000
80000
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