Cash budgeting Handout MA

Q No. 1. Purchase and Cash Payments: A production budget by fiscal quarter for Knowlton Company is given as follows: First Quarter Second Quarter Third Quarter Fourth Quarter 24000 units 30000 units 32000 units 42000 units

Four units of materials are used in producing each unit of product. Each unit of material costs $60.the material inventory is to be equal to 25% of production requirement for the next quarter. This requirement was met at the beginning of the year. Production for the first quarter following the budget year is estimated at 28000 units. Account payable for material purchased is estimated at $38400 at the beginning of the current budget year. It is estimated that account payable at the end of the quarter for material purchased will be equal to 40% of the purchases during the quarter. Required: 1. Determine the number of units of material to be purchased each quarter. 2. Determine the cost of material to be purchased by quarters. 3. Estimate the payments to be made each quarter for material Q No. 2. Sales and Collection: Henderson Neat Shirts Co. sells shirts and is budgeting for 1996.the beginning actual account receivable, inventory (at cost) and account payable balances and partial 1996 data are given: Beginning Balances (1/1/96) Accounts Receivable ..$200,000 Inventory (at cost) $150,000 Accounts Payable ...$100,000 1996 Data Sales Cost of sales First Quarter $600,000 $360,000 Second Quarter $800,000 $480,000

Required: 1. Quarterly ending inventory should be 60 percent of the next quarters expected sales volume. Find the budgeted purchases of shirts during the first quarter. 2. Sales are all on credit, and 80percent is collected in the quarter of sale. The remainder is collected in the next quarter. Find the budgeted cash collections for the second quarter.

Q No. 3. Revised Production Budget. By the middle of September, the sales manager of Powell Supplies Inc realized that the original forecast for the fourth quarter would have to be revised. The original forecast showed that 160,000 units would be sold in October, 220,000 units would be sold in November, 270,000 units would be sold in December and 300,000 units would be sold in January. It now appears that sales will be as follows: Months Units

October ...$150,000 November....$200,000 December$230,000 January$240,000 Normally, 200 units of this product can be produced in one hour of machine time. An inventory equal to 20 percent of the estimated sales for the next months is to be on hand at the end of each month, and the company plans to have 32,000 units in the inventory on September 30. Required: 1. Prepare production and machine-hour budgets for the three months of the fourth quarter using the original forecast. 2. Prepare revised production and machine-hour budgets for the three months of the fourth quarter using the revised sales forecast. (Assume that the inventory is to be 32,000 units on September 30 in either case.) 3. How many hours of production machine time can be released each month for other work in this department by the expected reduction in sales? Q No. 4. Forecast Cash Payments. Stock & Stem Companys January 1 actual inventory was $5,000 and payables were $3,000. Cost of goods sold for January, February, and March were $30,000, $35,000 and $40,000 respectively. The purchases policy says that ending inventory should be 20 percent of next months cost of sales. Of purchases, 40 percent is paid in the current month and the rest in the next month. Required: 1. Find the forecast cash payments for February. Q No. 5. Production Schedules. Olympia Candies is preparing a budget for the second quarter of the current calendar year. The March ending inventory of merchandise was $106,000, which was higher than expected. The company prefers to carry ending inventory amounting to the expected sales volume of the next two months. Purchases of merchandise are paid half in the month of purchase and half in the month following purchase, and the balance due on accounts payable at the end of March was $24,000. Budgeted sales are as follows: April.... $40,000 May..$48,000

July.. $72,000 August. $56,000

June..$60,000

September$60,000

Required: 1. Assuming a 25 percent gross profit margin is budgeted, prepare a budget showing the following amounts for the months of April, May and June: Cost of goods sold. Purchases required. Cash payments for merchandise. 2. Assuming the balance on accounts receivables at the beginning of April was $35,000 and all customers pay three fourths in the month of sale and one fourth in the month following the sale, prepare a budget showing the cash receipts from accounts receivable for April, May and June. Q No. 6. Cash Collections and Receivables. Past experience has demonstrated that 70 percent of the net sales billed in a month by Meyer Company is collected during the month, 20percent is collected in the following month, and 10 percent is collected in the second following month. A record of estimated net sales by month is given as follows: 1995 November.$450,000 December. $460,000 1996 January. $480,000 February$420,000 March$500,000 April. $550,000 May.. $600,000 June...$700,000 On January 1, 1996, the net accounts receivables balance is planned at $ 183,000 Required: Prepare a schedule of expected collections on accounts receivable for each of the first six months of 1996, and show the estimated balance of net accounts receivable at the end of each month. Q No. 7. Cash Receipts from Sales. Ponytail Productions has actual and anticipated revenues as follows: Actual: July $67,000 August$69,000 Budgeted: September...$72,000 October.. $75,000 November.. $80,000

December... $90,000 The controller has maintained a record of collections and has established the following pattern: Month of sale...60% First month after sale..30% Second month after sale5% Third month after sale3% Uncollected2% Required: Calculate the amount of cash the company is budgeting for collection by month in the fourth quarter of the year Qno8.budget schedules: the following data apply to the Borden Hardware Store and its 1997 budget:
Forecast Sales Jan $60,000 Feb $50,000 Mar $80,000 Apr $90,000 Balance Sheet Data December 31,1996 cash Account receivable: November sales December sales Inventory Account payable(merchandise) $8,000 16000 50000 54000 27000

Other data are as follows: Sales are on credit with 60% of sales collected in the same month after sale , 40% in the second month after sale Cost of goods sold is 60% of sales Other variables costs are 10% of sales paid in the month incurred Inventories are to be 150% of next months budgeted sales requirements Fixed expenses are $3000 per month; all require cash

Required: 1. prepare budget of purchase for each of the first three months of 1997

2. prepare separate budgets of cash receipts and disbursements and cash budget for each of the first three months of 1997 3. prepare a budget income statement for the first quarter of 1997 Qno9.Production budget: a budget of the number of product units to be manufactured next year was prepared by Saunders Metals Company and is given as follows:
First quarter Second quarter Third quarter Fourth quarter 48000 56000 64000 60000

A years cost estimates are based on the pervious years actual costs. the direct material cost per unit to estimated at $6 direct labor is budgeted at $4 per unit, and factory overhead is to be applied at 200% of direct labor cost, 80%of the production for the quarter is to be sold in the quarter and 20% of production is to be sold in the following quarter. An inventory of 12300 units on the hand at the beginning of the budget year is to be sold in the first quarter. Qno10.cash payments for operations: Sargetis paper products, Inc.averrage a gross profit of 30%.sale for august were %500000.the beginning inventory balance for august was $15000 higher than the ending inventory balance. The account payable account had a balance of $45000 at the beginning of august and a balance of $52000 at the end. the selling and administrative expenses are paid in the month incurred .such expenses follow the formula of 5%of sales plus $25000 per month, including depreciation expense of $10000. Required: Compute the amount of cash payments made for operations during august. Qno11.estimated income statement: Garrett Appliances Inc. prepared a budget for 1997 by quarters. Data from the budget appear as follows:
Material Purchased $280,000 360000 400000 300000 Beginning Material Inventory $60,000 75000 50000 40000 40000

First quarter Second quarter Third quarter Fourth quarter First quarter,1998

Direct labor is budgeted at $140000 each quarter with factory overhead estimated at 200%of direct labor cost. Selling and administrative expenses are budgeted at $115000 each quarter as follows:
First quarter Second quarter Third quarter Fourth quarter $860,000 940000 990000 960000

The amount of finished goods is estimated to be$120000 at the beginning of the year. it is expected to increase to $150000 by the end of the end of the first quarter and will remain at the level until the end of the year when it will be reduced to $120000 Qno12. Cash budget. Jennifer Witte is preparing a budget of cash receipts and disbursements for Gourmet Food Services, Inc. some sales are for cash and the rest of the sales is on a contract basis and is billed. Sales and collection data for April to august are as follows:
CASH SALES APRIL MAY JUNE JULY AUGUST $65,000 72000 84000 88000 86000 BILLED SALES $40,000 46000 68000 72000 70000 TOTAL $105,00 0 118000 152000 160000 156000

Of the billed sales, 65%is collected during the month of sale, and the other 35%is collected in the following month. Food costs amounting to 75% of sale3s must be paid during the month .operating cast of $24000 must be paid each month. Food costs will increase to 80% of sales in June. The cash balance at may 1 amounted $7000.if the cash balance is over $20000 on august 31, Witte and the other stockholders will receive the excess as dividends. Required: 1. Prepare a budget of cash receipts and disbursements for each month, may to August, inclusive. 2. compute the amount ,if any ,that can be paid in dividend at the end of august