Question

2-3 Niels Cor isti Corporation prepares monthly cash budgets. Relevant data from operating budgets for 2017 Prepare caslı budget (LO4) AP Direct materials purchases Direct Labour Manufacturing overhead Selling and administrative expenses January $350,000 120,000 80,000 70.000 79,000 February $400,000 130,000 100.000 75.000 81,000 All sales are on accxvunt. Collections are expected to be 50% in the month of sale, 30% in the first month follow the sale, and 20% in the second month following the sale. Sixty percent of direct materials purchases are paid cash in the month of purchase, and the balance duc is paid in the month following the purchase. All other item above are paid in the month incurred, except for selling and administrative expetises, which include 51.000 depreciation per month Other data: 1. Credit sales: November 2016, S260,000: December 2016, $300,000 2. Purchases of direct materials: December 2016, S100,000 3. Other receipts: January collection of December 31, 2016, notes receivable, $15,000 February proceeds from all of investments, S6,000 4. Other disbursements: February payment of dividends, $5,000 "The company's cash balance on January 1, 2017, is expected to be $60,000. The company wants to maintain minimum cash balance of S51,000. Instructions (a) Prepare Achedules for it) the expected cash collections from customers and (2) the expected payments for direct materials purchases. (b) Prepare a cash budeer for January and February TAKING IT FURTHER "The most important reas in a company prepares a cash budget is to see how much cash it will have in the bank at the end of the year. Do you agree with this statement? Explain.

Answer 1

Solution:

Schedule for expected cash collections from customers

	November	December	January	February
Credit Sales	2,60,000.00	3,00,000.00	3,50,000.00	4,00,000.00
Collection of Sales of November	50% 1,30,000.00	30% 78,000.00	20% 52,000.00
Collection of Sales of December		50% 1,50,000.00	30% 90,000.00	20% 60,000.00
Collection of Sales of January			50% 1,75,000.00	30% 1,05,000.00
Collection of Sales of February				50% 2,00,000.00
Total Collection from customers	1,30,000.00	2,28,000.00	3,17,000.00	3,65,000.00

Schedule for expected payment for direct material purchases

	December	January	February
Purchase of direct material	1,00,000.00	1,20,000.00	1,30,000.00
Payment for Purchases of December	60% 60,000.00	40% 40,000.00
Payment for Purchases of January		60% 72,000.00	40%    48,000.00
Payment for Purchases of February			60%      78,000.00
Total payment of purchases	60,000.00	1,12,000.00	1,26,000.00

Cash Budget for the Month of January and February

Particulars	January $	February $
Opening Cash balance	60,000.00	52,000.00
Add: Receipts
Total Collection from customers	3,17,000.00	3,65,000.00
Collection of Notes receivable	15,000.00
Proceeds from sale of investment		6,000.00
Total Cash available	3,92,000.00	4,23,000.00
Less: Payments
Total payment of purchases	1,12,000.00	1,26,000.00
Payment of wages	80,000.00	1,00,000.00
Payment of manufacturing overheads	70,000.00	75,000.00
Payment of selling and administrative expenses	78,000.00	80,000.00
Payment of dividends		5,000.00
Total payments	3,40,000.00	3,86,000.00
Total Cash available - Total payments	52,000.00	37,000.00
Add: Bank Overdraft		13,000.00
Closing Balance	52,000.00	50,000.00