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

24000 units

Second Quarter

30000 units

Third Quarter

32000 units

Fourth Quarter

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:

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

Material
Purchased
$280,000

Beginning Material
Inventory
$60,000

360000
400000

75000
50000

300000

40000
40000

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:

APRIL
MAY
JUNE
JULY
AUGUST

CASH
SALES

BILLED
SALES

$65,000
72000
84000
88000
86000

$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