Question

Waterways Corporation is preparing its budget for the coming year, 2020. The first step is to plan for the first quarter of that coming year. The company has gathered information from its managers in preparation of the budgeting process.

Sales
Unit sales for November 2019		111,000
Unit sales for December 2019		101,000
Expected unit sales for January 2020		112,000
Expected unit sales for February 2020		114,000
Expected unit sales for March 2020		115,000
Expected unit sales for April 2020		124,000
Expected unit sales for May 2020		138,000
Unit selling price		$12

Waterways likes to keep 10% of the next month’s unit sales in ending inventory. All sales are on account. 85% of the Accounts Receivable are collected in the month of sale, and 15% of the Accounts Receivable are collected in the month after sale. Accounts receivable on December 31, 2019, totaled $181,800.

Direct Materials

Direct materials cost 80 cents per pound. Two pounds of direct materials are required to produce each unit.

Waterways likes to keep 5% of the materials needed for the next month in its ending inventory. Raw Materials on December 31, 2019, totaled 11,220 pounds. Payment for materials is made within 15 days. 50% is paid in the month of purchase, and 50% is paid in the month after purchase. Accounts Payable on December 31, 2019, totaled $102,605.

Direct Labor

Labor requires 12 minutes per unit for completion and is paid at a rate of $9 per hour.

Manufacturing Overhead
Indirect materials		30¢		per labor hour
Indirect labor		50¢		per labor hour
Utilities		50¢		per labor hour
Maintenance		20¢		per labor hour
Salaries		$41,000		per month
Depreciation		$17,400		per month
Property taxes		$2,900		per month
Insurance		$1,300		per month
Maintenance		$1,300		per month

Selling and Administrative
Variable selling and administrative cost per unit is $1.60.
Advertising		$14,000	a month
Insurance		$1,300	a month
Salaries		$72,000	a month
Depreciation		$2,400	a month
Other fixed costs		$2,800	a month

Other Information

The Cash balance on December 31, 2019, totaled $100,000, but management has decided it would like to maintain a cash balance of at least $700,000 beginning on January 31, 2020. Dividends are paid each month at the rate of $2.50 per share for 4,720 shares outstanding. The company has an open line of credit with Romney’s Bank. The terms of the agreement requires borrowing to be in $1,000 increments at 9% interest. Waterways borrows on the first day of the month and repays on the last day of the month. A $540,000 equipment purchase is planned for February.

For the first quarter of 2020, prepare a schedule for expected cash collections from customers.

Schedule of Expected Collections from Customers
		January		February		March		Quarter
Accounts receivable, 12/31/19		$		$		$		$
January sales
February sales
March sales
Total cash collections		$		$		$		$

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Answer 1

Schedule of Expected Collections from Customers
	January	February	March	Quarter
Accounts receivable, 12/31/19	$       181,800			$     181,800
January sales	$    1,142,400	$       201,600		$ 1,344,000
February sales		$    1,162,800	$    205,200	$ 1,368,000
March sales			$ 1,173,000	$ 1,173,000
Total cash collections	$   1,324,200	$    1,364,400	$ 1,378,200	$ 4,066,800

Working

	January	February	March
Accounts receivable, 12/31/19	181800
January sales	=112000*12*85%	=112000*12*15%
February sales		=114000*12*85%	=114000*12*15%
March sales			=115000*12*85%