Question

Problem 21-4A Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2017 are as follows: February January Sales $405,360 $450,400 Direct materials purchases 135,120 140,750 Direct labor 101,340 112,600 78,820 Manufacturing overhead 84,450 Selling and administrative expenses 88,954 95,710 All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Sixty percent (60%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred except for selling and administrative expenses that include $1,126 of depreciation per month Other data: Credit sales: November 2016, $281,500; December 2016, $360,320. 1. Purchases of direct materials: December 2016, $112,600. 2. Other receipts: January-Collection of December 31, 2016, notes receivable $16,890; 3. February-Proceeds from sale of securities $6,756. Other disbursements: February-Payment of $6,756 cash dividend. 4. The company's cash balance on January 1, 2017, is expected to be $67,560. The company wants to maintain a minimum cash balance of $56,300.

Answer 1

Colter Company
Expected cash collections				Calculation
Req a1	Jan	Feb		Jan	Feb
Nov sales	56,300	-		=281,500*20%
Dec sales	108,096	72,064		=360,320*30%	=360,320*20%
Jan sales	202,680	121,608		=405,360*50%	=405,360*30%
Feb sales	-	225,200			=450,400*50%
Total cash collections	367,076	418,872
Expected cash payments -Material Purchases
Req a2	Jan	Feb		Jan	Feb
Dec Purchases	45,040	-		=112,600*(1-60%)
Jan Purchases	81,072	54,048		=135,120*60%	=135,120*(1-60%)
Feb Purchases	-	84,450			=140,750*60%
Total cash payments-materials	126,112	138,498
Cash budget
Req b	Jan	Feb		Jan	Feb
Cash balance, beginning	67,560	57,426
Add: Cash Receipts
Cash collections	367,076	418,872
Collection of note receivable	16,890	-
Proceeds from sale of securities	-	6,756
Total Cash Receipts	383,966	425,628
Total Cash Available	451,526	483,054
Less: Cash Payments
Direct material purchases	126,112	138,498
Direct labor	101,340	112,600
Manufacturing overhead	78,820	84,450
Selling and administrative expenses	87,828	94,584		=88,954-1,126	=95,710-1,126
Cash dividends paid	-	6,756
Total Cash Payments	394,100	436,888
Excess (deficiency) of cash	57,426	46,166
Financing
Add: Borrowings		10,134			=56,300-46,166
Less: Repayments	-	-
Cash balance, ending	57,426	56,300