The Johnston Company had the following costs based on the production and sale of

Question

The Johnston Company had the following costs based on the production and sale of 40,000 units: Direct Materials 30% of selling price Other information: The company had the following actual sales for November and budgeted sales for December, January, and February: Month December January February Sales in units 50.000 60.000 30,000 The company has a policy of always maintaining the following inventory levels: Finished Goods Inventory 10% of next month?s sales. Direct Materials Inventory = 4O% of next month?s production requirements. The company?s sales and collection history shows that 10% of all sales are for cash and the accounts receivable are collected in the following way: 70% in the month of the sale 28% in the month after the sale Direct materials are paid for as follows: 50% in month of purchase. and 50% in the month after purchase $100.000 of direct materials were purchased in November Selling price per unit is $50 Required: Calculate the total budgeted cash collections in February, portion of December sales that will be collected in January, Beginning inventory of direct materials in December, and the payment for direct materials in December. Enter the answers in the table below:

Explanation / Answer

Budgeted cash collections in Febuary

= cash sales + credit sales

= 10% of febuary sales + 90% * 28% of january sales + 90% * 70% of febuary sales

= (0.1 * 30000 + 0.9 * 0.28 * 60000 + 0.9 * 0.7 * 30000) * 50

= $1,851,000

December sales collecteed in January

= 90% * 28% * december sales
= 0.9 * 0.28 * 50000 * 50

= $630,000

Beginning direct materials inventory in december

= 40% * sales of january

= 40% 60000 * 50

= $1,200,000

payment for direct materials in december

= 50% * direct materials of december + 50% direct materials of november

= 0.5 * 1,200,000 + 0.5 * 100000

= $650,000

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