Question

Colter Company prepares monthly cash budgets. Relevant data from operating budgets for 2020 are as follows.

		January		February
Sales		$ 432,000		$ 480,000
Direct materials purchases		144,000		150,000
Direct labor		108,000		120,000
Manufacturing overhead		84,000		90,000
Selling and administrative expenses		94,800		102,000

All sales are on account. Collections are expected to be 50% in the month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Sixty percent (60%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred except for selling and administrative expenses that include $ 1,200 of depreciation per month.

Other data:

1.		Credit sales: November 2019, $ 300,000; December 2019, $ 384,000.
2.		Purchases of direct materials: December 2019, $ 120,000.
3.		Other receipts: January—Collection of December 31, 2019, notes receivable $ 18,000;
		February—Proceeds from sale of securities $ 7,200.
4.		Other disbursements: February—Payment of $ 7,200 cash dividend.

The company’s cash balance on January 1, 2020, is expected to be $ 72,000. The company wants to maintain a minimum cash balance of $ 60,000.

Prepare schedules for (1) expected collections from customers and (2) expected payments for direct materials purchases for January and February.

Expected Collections from Customers
		January		February
November		$		$
December
January
February
Total collections

Answer 1

Expected collection from customers :

	January	February
November	300000*20% = 60000
December	384000*30% = 115200	76800
January	432000*50% = 216000	432000*30% = 129600
February		480000*50% = 240000
Total collection	391200	446400

Expected payment for direct material purchase :

	January	February
December	120000*40% = 48000
January	144000*60% = 86400	144000*40% = 57600
February		150000*60% = 90000
Total cash payment	134400	147600