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Chapter 22: 9SE (page 1230)

Preparing a financial budget—schedule of cash receipts
Berry expects total sales of $359, 000 i n J a n u a r y a n d$ 405,000 in February. Assume that Berry’s sales are collected as follows:
80% in the month of the sale
10% in the month after the sale
6% two months after the sales
4% never collected
November sales totaled $350, 000, a n d D e c e m b e r s a l e s w e r e$ 325,000. Prepare a schedule of cash receipts from customers for January and February. Round answers to the nearest dollar.

Short Answer

Expert verified

The total cash receipts from customers are $340,700 and $379,400 for January and February respectively.

Step by step solution

01

Meaning of reciepts

The receipts are the amount that will be received by the company for the services or goods provided.

02

Schedule of cash receipts from customers

Particulars	January	February
Total sales expected	$359,000	$405,000
Cash receipts from customers
Cash received in the month of sales (10%)	$287,200	$324,000
Cash received in the month after sales (10%)	$32,500	$35,900
Cash received two months after sales (6%)	$21,000	$19,500
Total cash receipts from customers	$340,700	$379,400

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Most popular questions from this chapter

Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets The Irwin Batting Company manufactures wood baseball bats. Irwin’s two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Irwin sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for $35; t h e a d u l t b a t s e l l s f o r$ 50. Irwin’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Irwin’s balance sheet for December 31, 2018, follows:

Other data for Irwin Batting Company for the first quarter of 2019:

a. Budgeted sales are 1,400 youth bats and 3,300 adult bats.

b. Finished Goods Inventory on December 31, 2018, consists of 700 youth bats at $15 e a c h a n d 550 a d u l t b a t s a t$ 10 each.

c. Desired ending Finished Goods Inventory is 220 youth bats and 300 adult bats; FIFO inventory costing method is used.

d. Direct materials requirements are 40 ounces of wood for youth bats and 70 ounces of wood for adult bats. The cost of wood is \(0.10 per ounce.

e. Raw Materials Inventory on December 31, 2018, consists of 90,000 ounces of wood at \)0.10 per ounce.

f. Desired ending Raw Materials Inventory is 90,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).

g. Each bat requires 0.4 hours of direct labor; direct labor costs average \(26 per hour.

h. Variable manufacturing overhead is \)0.30 per bat.

i. Fixed manufacturing overhead includes $1, 300 p e r q u a r t e r i n d e p r e c i a t i o n a n d$ 14,977 per quarter for other costs, such as insurance and property taxes.

j. Fixed selling and administrative expenses include $13, 000 p e r q u a r t e r f o r s a l a r i e s;$ 3,500 per quarter for rent; $1, 400 p e r q u a r t e r f o r i n s u r a n c e; a n d$ 450 per quarter for depreciation. k. Variable selling and administrative expenses include supplies at 1% of sales.

Requirements

1. Prepare Irwin’s sales budget for the first quarter of 2019.

2. Prepare Irwin’s production budget for the first quarter of 2019.

3. Prepare Irwin’s direct materials, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.

4. Prepare Irwin’s cost of goods sold budget for the first quarter of 2019.

5. Prepare Irwin’s selling and administrative expense budget for the first quarter of 2019.

Preparing a financial budget

This problem continues the Piedmont Computer Company situation from Chapter 21. Assume Piedmont Computer began January with $15, 000 c a s h . M a n a g e m e n t f o r e c a s t s t h a t c a s h r e c e i p t s f r o m c r e d i t c u s t o m e r s w i l l b e$ 48,000 in January and $51, 000 i n F e b r u a r y . P r o j e c t e d c a s h p a y m e n t s i n c l u d e e q u i p m e n t p u r c h a s e s ($ 20,000 in January and $41, 000 i n F e b r u a r y) a n d s e l l i n g a n d a d m i n i s t r a t i v e e x p e n s e s ($ 2,000 each month).

Piedmont Computer Company’s bank requires a $26, 000 m i n i m u m b a l a n c e i n t h e f i r m^{'} s c h e c k i n g a c c o u n t . A t t h e e n d o f a n y m o n t h w h e n t h e a c c o u n t b a l a n c e f a l l s b e l o w$ 26,000, the bank automatically extends credit to the firm in multiples of $5, 000. P i e d m o n t C o m p u t e r C o m p a n y b o r r o w s a s l i t t l e a s p o s s i b l e a n d p a y s b a c k l o a n s e a c h m o n t h i n$ 1,000 increments, plus 12% interest on the entire unpaid principal. The first payment occurs one month after the loan.

Requirements

1. Prepare Piedmont Computer Company’s cash budget for January and February 2020.

2. How much cash will Piedmont Computer Company borrow in February if cash receipts from customers that month total $41, 000 i n s t e a d o f$ 51,000?

Budgeting types Consider the following budgets and budget types.

Cash Cost of Goods Sold

Flexible Master

Operational Sales

Static Strategic

Which budget or budget type should be used to meet the following needs?

a. Upper management is planning for the next five years.

b. A store manager wants to plan for different levels of sales.

c. The accountant wants to determine if the company will have sufficient funds to pay expenses.

d. The CEO wants to make companywide plans for the next year.

Preparing a financial budget—cash budget, sensitivity analysis

Leichter Auto Parts, a family-owned auto parts store, began January with $10, 500 c a s h . M a n a g e m e n t f o r e c a s t s t h a t c o l l e c t i o n s f r o m c r e d i t c u s t o m e r s w i l l b e$ 11,000 in January and $15, 200 i n F e b r u a r y . T h e s t o r e i s s c h e d u l e d t o r e c e i v e$ 8,500 cash on a business note receivable in January. Projected cash payments include inventory purchases ( $15, 600 i n J a n u a r y a n d$ 14,800 in February) and selling and administrative expenses (\(2,900 each month).

Leichter Auto Part'sbank requires a \)10,000 minimum balance in the store’s checking account. At the end of any month when the account balance falls below $10, 000, t h e b a n k a u t o m a t i c a l l y e x t e n d s c r e d i t t o t h e s t o r e i n m u l t i p l e s o f$ 1,000. Leichter Auto Parts borrows as little as possible and pays back loans in quarterly installments of \(2,000, plus 4% APR interest on the entire unpaid principal. The first payment occurs three months after the loan.

Requirements

1. Prepare Leichter Auto Part'scash budget for January and February.

2. How much cash will Leichter Auto Parts borrow in February if collections from customers that month total \)14,200 instead of $15,200?

What is the formula used to determine the amount of merchandise inventory to be purchased?

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