Question

Chapter 7 BRIEF EXERCISE 7-2 Schedule of Expected Cash Collections (CCS) Silver Company makes a product that is very popular as a Mother's Day gift. Thus, peak sales occur in May of each year. These peak sales are shown in the following sales budget for the second quarter: Budgeted sales ..... April $400,000 May $600,000 $300,000 Total $1.100.000 From past experience, the company has learned that 25% of a month's sales are collected in the month of sale, that another 65% is collected in the month following sale, and that the remaining 10% is collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totalled $380,000, and March sales totalled $360,000 Required: 1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter 2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date. BRIEF EXERCISE 7-3 Production Budget (CC6) Down Under Products, Lid., of Australia, has budgeted sales of its popular boomerang for the next four months as follows: Sales in Units April. May June July 50,000 75,000 90,000 80,000 The company is now in the process of preparing a production budget for the second quarter. Past experi- ence has shown that end-of-month inventory levels must equal 10% of the following month's sales. The inventory at the end of March was 5,000 units. (Australia's currency is Australian dollars.) Required: Prepare a production budget for the second quarte duced each month and for

Answer 1

1. Summary of cash Receipts from Customers
Description	April	May	June	Total
Budgeted Sales	$ 4,00,000	$ 6,00,000	$ 3,00,000	$ 13,00,000
Sales Collected in same month (25%)	$ 1,00,000	$ 1,50,000	$    75,000	$   9,75,000
Collected in next month (65%)	$ 2,34,000	$ 2,60,000	$ 3,90,000	$   8,84,000
Collected in 2nd month following the sale (10%)	$    38,000	$    36,000	$    40,000	$   1,14,000
Total Cash collection	$ 3,72,000	$ 4,46,000	$ 5,05,000	$ 13,23,000
2. Calculation of accounts Receivable balance as on June 30
Accounts receivable from sale occurred in May	$    60,000
(600000*10%)
Accounts receivable from sale occurred in june
(300000*75%)	$ 2,25,000
Total Balance as on june 30	$ 2,85,000