In March 1 of the current year, Spicer Corporation compiled information to prepa

Question

In March 1 of the current year, Spicer Corporation compiled information to prepare a cash budget for March, April, and May. All of the company’s sales are made on account. The following information has been provided by Spicer’s management.

  

  

The company’s collection activity on credit sales historically has been as follows.

  

  

Spicer’s total cash expenditures for March, April, and May have been estimated at $1,200,000 (an average of $400,000 per month). Its cash balance on March 1 of the current year is $500,000. No financing or investing activities are anticipated during the second quarter.

  

Compute Spicer’s budgeted cash balance at the ends of March, April, and May.

Month Credit Sales January $ 300,000 (actual) February 400,000 (actual) March 593,000 (estimated) April 503,000 (estimated) May 800,000 (estimated)

Explanation / Answer

Cash Receipts budget

Cash Budget

March April May Cash collected in the month of sale 296,500 (593,000*50%) 251,500 (503,000*50%) 400,000 (800,000*50%) Cash collected in the first month after the sale   120,000 (400,000*30%) 177,900 (593,000*30%) 150,900 (503,000*30%) Cash collected in the second month after the sale 45,000 (300,000*15%) 60,000 (400,000*15%) 88,950 (593,000*15%) Total cash collections 461,500 489,400 639,850

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