Cash Budget Below is summary monthly income statement data for Ace Manufacturing
ID: 2466103 • Letter: C
Question
Cash Budget Below is summary monthly income statement data for Ace Manufacturing Company. January February Sales revenue 250,000 275,000 Direct materials purchases 60,000 70,000 Direct labor 88,000 95,000 Manufacturing overhead 50,000 52,000 Selling and administrative expenses 45,000 46,000 All sales are on account, and history has shown that 40% of sales are expected to be collected in the month of the sale, with 60% collected the following month. Direct materials are paid 50% in the month of purchase and 50% the following month. All other expenses are paid as incurred. All costs shown are cash-based costs (depreciation has already been eliminated). Other data: 1. December sales were $230,000. 2. Purchases of direct materials purchased in December were $50,000. 3. The company has interest payments due of $5,000 per month. 4. The cash balance on January 1 was $15,000. Instructions A. Prepare schedules for expected collections from customers and expected payments for direct materials purchases. B. Prepare a cash budget for January and February. Cash collections: Credit Sales January February December #VALUE! January #VALUE! #VALUE! February #VALUE! #VALUE! #VALUE! Cash disbursements for materials: Purchases January February December #VALUE! January #VALUE! #VALUE! February #VALUE! #VALUE! #VALUE! Cash budget: January February Beginning cash #VALUE! Cash collections #VALUE! #VALUE! Direct materials purchases #VALUE! #VALUE! Direct labor (95,000) Manufacturing overhead (52,000) Selling and administrative expenses (46,000) Interest payment (5,000) Ending cash #VALUE! #VALUE! As we can see, cash is on a downward trend and cash management is critical. Cash Budget Below is summary monthly income statement data for Ace Manufacturing Company. January February Sales revenue 250,000 275,000 Direct materials purchases 60,000 70,000 Direct labor 88,000 95,000 Manufacturing overhead 50,000 52,000 Selling and administrative expenses 45,000 46,000 All sales are on account, and history has shown that 40% of sales are expected to be collected in the month of the sale, with 60% collected the following month. Direct materials are paid 50% in the month of purchase and 50% the following month. All other expenses are paid as incurred. All costs shown are cash-based costs (depreciation has already been eliminated). Other data: 1. December sales were $230,000. 2. Purchases of direct materials purchased in December were $50,000. 3. The company has interest payments due of $5,000 per month. 4. The cash balance on January 1 was $15,000. Instructions A. Prepare schedules for expected collections from customers and expected payments for direct materials purchases. B. Prepare a cash budget for January and February. Cash collections: Credit Sales January February December #VALUE! January #VALUE! #VALUE! February #VALUE! #VALUE! #VALUE! Cash disbursements for materials: Purchases January February December #VALUE! January #VALUE! #VALUE! February #VALUE! #VALUE! #VALUE! Cash budget: January February Beginning cash #VALUE! Cash collections #VALUE! #VALUE! Direct materials purchases #VALUE! #VALUE! Direct labor (95,000) Manufacturing overhead (52,000) Selling and administrative expenses (46,000) Interest payment (5,000) Ending cash #VALUE! #VALUE! As we can see, cash is on a downward trend and cash management is critical.Explanation / Answer
Solution:
Cash collections:
Credit sales
January
February
December
230,000
138,000
January
250,000
100,000
150,000
February
275,000
110,000
238,000
260,000
230,000*60% = 138,000, 250,000*40% = 100,000
250,000*60% = 150,000, 275000*40% = 110,000
Cash disbursement for materials
Purchases
March
April
December
50,000
25,000
January
60,000
30,000
30,000
February
70,000
35,000
50,000*50% = 25,000, 60,000*50% = 30,000, 70,000*50% = 35,000
Cash budget
January
February
Beginning cash
15,000
10,000
Cash collections
238,000
260,000
Direct materials purchases
(55,000)
(65,000)
Direct labor
(88,000)
(95,000)
Manufacturing overhead
(50,000)
(52,000)
Selling and administrative expenses
(45,000)
(46,000)
Interest payment
(5,000)
-
Ending cash
10,000
7,000
As we can see, cash is on a downward trend and cash management is critical.
:
Credit sales
January
February
December
230,000
138,000
January
250,000
100,000
150,000
February
275,000
110,000
238,000
260,000