The treasurer of Calico Dreams Company has accumulated the following budget info
ID: 2559727 • Letter: T
Question
The treasurer of Calico Dreams Company has accumulated the following budget information for the first two months of the coming fiscal year:
The company expects to sell about 35% of its merchandise for cash. Of sales on account, 80% are collected in full in the month of the sale, and the remainder in the month following the sale. One-fourth of the manufacturing costs are paid in the month in which they are incurred, and the other three-fourths in the following month. Depreciation, insurance, and property taxes represent $6,400 of the monthly selling and administrative expenses. Insurance is paid in February, and property taxes are paid yearly in September. A $40,000 installment on income taxes is to be paid in April. Of the remainder of the selling and administrative expenses, one-half are to be paid in the month in which they are incurred and the balance in the following month. Capital additions of $250,000 are paid in March.
Current assets as of March 1 are composed of cash of $45,000 and accounts receivable of $51,000. Current liabilities as of March 1 are accounts payable of $121,500 ($102,000 for materials purchases and $19,500 for selling and administrative expenses). Management desires to maintain a minimum cash balance of $25,000.
Prepare a monthly cash budget for March and April. If an amount box does not require an entry, leave it blank. Use the minus sign to indicate negative numbers or decrease in cash.
March April Sales $450,000 $520,000 Manufacturing costs 290,000 350,000 Selling and administrative expenses 41,400 46,400 Capital additions 250,000 -Explanation / Answer
Calico Dreams Company
Cash Budget for the two month sending April 30 (Amount in $)
Working notes:-
1) Credit sales is 65% of total sales of month out of which 80% is collected in the month of sale and balance 20% is collected in the following month. For the month of march the opening accounts receivable of $51,000 and 80% of current month credit sales [i.e.80%(65% of 450,000) = $234,000].Thus total collection is $285,000(51,000+234,000). Similarly for the month of april 20% of the balance of march [i.e.20%(65% of 450,000) = $58,500) and 80% of the current month credit sales will be collected. [i.e. 80%(65% of 520,000) = $270,400]
2) Payment for selling and administrative expenses is calculate as follows:-
March = 41,400 - 6,400 = (35,000/2)+19,500 = $37,000
April = 46,400-6,400 = (40,000/2)+(35,000/2) = $37,500
3) Payment for manufacturing costs are calculated as follows:-
March = (290,000/4)+102,000 = $174,500
April = (350,000/4)+(290,000*3/4) = $305,000
Particulars March April Estimated Cash Receipts from: Cash Sales (35% of sales) 157,500 182,000 Collection of accounts receivable (80% of credit sales) 285,000 328,900 Total cash receipts (A) 442,500 510,900 Estimated cash payments for: Manufacturing costs(1/4th of current month and 3/4th of last month) 174,500 305,000 Selling and administrative expenses 37,000 37,500 Capital additions 250,000 Income taxes 40,000 Total cash payments (B) 501,500 342,500 Cash increase (decrease) (C = A-B) (59,000) 168,400 Cash balance at beginning of month (D) 45,000 (14,000) Cash balance at end of month (E = C+D) (14,000) 154,400 Minimum cash balance (F) 25,000 25,000 Excess (deficiency) (E-F) (39,000) 129,400Related Questions
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