Montana timber company is in the process of preparing its budget for next year.
ID: 2350846 • Letter: M
Question
Montana timber company is in the process of preparing its budget for next year. Cost of goods sold has been estimated at 70 percent of sales. Lumber purchases and payments are to be made during the month preceding the month of sale. Wages are estimated at 15 percent of sales and are paid during the month of sale. Other operating costs amounting to 10 percent of sales are to be paid in the month following the month of sale. Additionally, a monthly lease payment of $12,000 is paid to BMI for computer services. Sales revenue forecast is as follows:Month Sales Revenue
February $100,000
March 160,000
April 180,000
May 210,000
June 180,000
July 230,000
Prepare a schedule of cash disbursements for April, May and June.
Explanation / Answer
April
May
June
Quarter
Cost of goods sold
147,000
126,000
161,000
434,000
Wages
27,000
31,500
27,000
85,500
Other operating costs
18,000
21,000
18,000
57,000
Lease payment
12,000
12,000
12,000
36,000
Total Cash Payments
204,000
190,500
218,000
612,500
Explanation of figures: For example for April, since lumber is bought the month before, to find cash spent for COGS you use May’s revenue 210,000*.7 = 147,000. For the other figures, you use Aprils’ revenue: Wages = 180,000*.15 = 27,000; other operating costs = 180,000*.1 = 18,000; and lease payment = 12,000. 147,000 + 27,000 + 18,000 + 12,000 = 204,000
April
May
June
Quarter
Cost of goods sold
147,000
126,000
161,000
434,000
Wages
27,000
31,500
27,000
85,500
Other operating costs
18,000
21,000
18,000
57,000
Lease payment
12,000
12,000
12,000
36,000
Total Cash Payments
204,000
190,500
218,000
612,500