Question

Question

A cash budget is being prepared for Hotels Inc for the month of May. The following information has been gathered to assist in preparing the budget:

a.   Budgeted sales and production requirements are as follows:

Budgeted Sales	$ 650,000
Production requirements
Raw material to be used	$ 301,000
Direct labour cost	85,000

2. Customers are allowed a 2% cash discount on accounts paid within 10 days after the end of the month of sale. Only 50% of the payments made in the month following sale fall within the discount period.

3. Accounts receivable outstanding at April 30 were as follows:

Month	Sales	Accounts	Percentage	Percentage to
		receivable at	of sales	be collected
		April 30	Uncollected	in May
			at April 30
January	$	$8,500	2.5%	?
	340,000
February	530,000	31,800	6.0%	?
March	470,000	47,000	10.0%	?
April	550,000	550,000	100.0%	?

All January receivables outstanding will be collected in May and the collection pattern since the time of the sale will be the same in May as in previous months.

4. Raw material purchases are paid in the month following the purchase and $ 320,000 in accounts payable for purchases was outstanding at the end of April.

5. Accrued wages on April 30 were $ 11,000. All May payroll amounts will be paid within the month of May.

6. Budgeted operating expenses and overhead cost for May are as follows:

Overhead and other		Total
charges
Indirect labour	$ 34,000
Property taxes	1,500
Depreciation	25,000
Utilities	1,500
Wage benefits	9,000
Fire insurance expired	1,500
Amortization of patents	5,000

Spoilage of materials in	1,500	$ 79000
the warehouse
Sales Salaries		45,000
Administrative salaries		15,000

7. Property taxes are paid in July of each year.
8. Utilities are billed and paid within the month.
9. Shipping cost for May will be $ 1,000 all payable in the month.
10. The cash balance at April 30^th was $5,750.

Required

1. Prepare a Cash collections schedule for the month of May.

2. Prepare a cash budget for May in good form. Hotels Inc require a minimum cash balance of $ 5,500 at the end of each month and therefore a line of credit is set up to allow for borrowings to cover any deficiency in the ending cash balance.

Answer 1

Collection of April sales	$                                           2,75,000
Collection of January receivables	$                                                8,500
Total collections	$                                           2,83,500

Opening cash balance	$                                                5,750
Collection of April sales	$                                           2,75,000
Collection of January receivables	$                                                8,500
Total collections	$                                           2,83,500
Cash balance available	$                                           2,89,250
Payment for Account payables	$                                     3,20,000.00
Accrued wages paid	$                                        11,000.00
May Payroll	$                                     1,19,000.00
Utilities	$                                          1,500.00
Shipping costs	$                                          1,000.00
Wage benefits	$                                          9,000.00
Sales salaries	$                                        45,000.00
Admin salaries	$                                        15,000.00
Fire insurance	$                                          1,500.00
Total cash payments	$                                     5,23,000.00
Cash balance before borrowing	$                                   -2,33,750.00
Minimum balance reqd	$                                          5,500.00
Borrowing reqd	$                                     2,39,250.00

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