Question

Webster Company has the following sales budget.

     

January	$200,000
February	$240,000
March	$300,000
April	$360,000

      Cost of sales is 70% of sales. Sales are collected 40% in the month of sale and 60% in the following month. Webster keeps inventory equal to double the coming month's budgeted sales requirements. It pays for purchases 80% in the month of purchase and 20% in the month after purchase. Inventory at the beginning of January is $190,000.   Webster has monthly fixed costs of $30,000 including $6,000 depreciation. Fixed costs requiring cash are paid as incurred.

   a. Compute budgeted cash receipts in March.  

   b. Compute budgeted accounts receivable at the end of March.

   c. Compute budgeted inventory at the end of February.

   d. Compute budgeted purchases in February.  

   e. March purchases are $290,000. Compute budgeted cash payments in March to suppliers of goods  

   f. Compute budgeted accounts payable for goods at the end of February.

   g. Cash at the end of February is $45,000. Cash disbursements are not required for anything other than payments to suppliers and fixed costs. Compute the budgeted cash balance at the end of March.

Answer 1

March receipts: $264,000 [($240,000 x 60%) + ($300,000 x 40%)]

b. Receivables at end of March: $180,000 [$300,000 x (100% - 40%)]

c. Inventory at end of February: $420,000 ($300,000 x 70% x 2)

d. February purchases: $252,000 [($240,000 x 70%) + ($300,000 x 2 x 70%) - ($240,000 x 2 x 70%)]

e. March payments: $282,400 [(252,000 x 20%) + ($290,000 x 80%)]

f. AP at end of February: $50,400 ($252,000 x 20%)

g.. Cash at end of March: $2,600 ($45,000 + $264,000 - $282,400 - $24,000