Question

apcaplett, Inc. has the following budgeted income statement for January and February: January February Revenues $1,200,000 $1,100,000 Direct Materials 220,000 202,000 Other Variable COGS 140,000 128,000 Fixed COGS 300,000 300,000 Gross Margin $ 540,000 $ 470,000 Period Costs (Fixed) 380,000 380,000 Income $ 160,000 $ 90,000 Wapcaplett has noticed the following trends: 20% of all sales are in cash, and the other 80% are credit sales. Credit sales are collected 75% in the month of the sale and 25% in the following month. Wapcaplett does not keep finished goods inventory. Wapcaplett ends each month with raw materials inventory valued at 15% of the following month’s budgeted direct materials usage. Wapcapplett pays for materials in the month after purchase. Wapcaplett pays for all costs other than materials in the month incurred The cash balance at the end of January is expected to be $85,000.

1. What are budgeted cash collections for February?

Dollars

2. What are budgeted direct materials purchases to be paid in February?

Dollars

3. What are budgeted TOTAL cash disbursements for February?

Dollars

4. What is the budgeted cash balance at the end of February?

Dollars

Answer 1

1.

	total sales	Cash sales	Working	Credit sales	Working
january	1200000	240000	1200000*.2	960000	1200000*.8
February	1100000	220000	1100000*.2	880000	1100000*.8

Cash collection of february =	100 % of cash sales of february + 75% of february credit sales +  25% of january credit sales
	=220000 + (880000*.75) + (960000*.25)
	=1120000

2.

Direct material payment = 85% of january usage + 15% of februray usage

=.85*220000 + .15*202000

=217300

3

Total cash disbursements in february =	direct material cost for february + other variable cogs + fixed cogs
	=217300+128000+300000
	=645300

Assumed period cost are non cash items.

4.

Opening cash	85000
ADD: receipts	1120000
Less:disbursements	645300
Closing balance	559700