1)Silver Company makes a product that is very popular as a
Mothers Day gift. Thus, peak sales occur in May of each year, as
shown in the companys sales budget for the second quarter given
April May June Total Budgeted sales (all on account)
$300,000 $500,000 $200,000 $1,000,000
From past experience, the company has learned that 20% of a
months sales are collected in the month of sale, another 70% are
collected in the month following sale, and the remaining 10% are
collected in the second month following sale. Bad debts are
negligible and can be ignored. February sales totaled $230,000, and
March sales totaled $260,000.
1. Prepare a schedule of expected cash collections from sales,
by month and in total, for the second quarter.
2. What is the accounts receivable balance on June 30th?
2) Down Under Products, Ltd., of Australia has budgeted sales of
its popular boomerang for the next four months as follows:
The company is now in the process of preparing a production budget
for the second quarter. Past experience has shown that end-of-month
inventory levels must equal 10% of the following months unit
sales. The inventory at the end of March was 5,000 units.
Prepare a production budget by month and in total, for the
3) Three grams of musk oil are required for each bottle of Mink
Caress, a very popular perfume made by a small company in western
Siberia. The cost of the musk oil is $1.50 per gram. Budgeted
production of Mink Caress is given below by quarters for Year 2 and
for the first quarter of Year 3:
Budgeted production, in bottles
Musk oil has become so popular as a perfume ingredient that it
has become necessary to carry large inventories as a precaution
against stock-outs. For this reason, the inventory of musk oil at
the end of a quarter must be equal to 20% of the following
quarters production needs. Some 36,000 grams of musk oil will be
on hand to start the first quarter of Year 2.
Prepare a direct materials budget for musk oil, by quarter and
in total, for Year 2.
4)Minden Company is a wholesale distributor of premium European
chocolates. The companys balance sheet as of April 30 is given
Buildings and equipment, net of depreciation
Liabilities and Stockholders
Total liabilities and stockholders equity
The company is in the process of preparing a budget for May and
has assembled the following data:
Sales are budgeted at $200,000 for May. Of these sales, $60,000
will be for cash; the remainder will be credit sales. One-half of a
months credit sales are collected in the month the sales are made,
and the remainder is collected in the following month. All of the
April 30 accounts receivable will be collected in May.
Purchases of inventory are expected to total $120,000 during
May. These purchases will all be on account. Forty percent of all
purchases are paid for in the month of purchase; the remainder are
paid in the following month. All of the April 30 accounts payable
to suppliers will be paid during May.
The May 31 inventory balance is budgeted at $40,000.
Selling and administrative expenses for May are budgeted at
$72,000, exclusive of depreciation. These expenses will be paid in
cash. Depreciation is budgeted at $2,000 for the month.
The note payable on the April 30 balance sheet will be paid
during May, with $100 in interest. (All of the interest relates to
New refrigerating equipment costing $6,500 will be purchased for
cash during May.
During May, the company will borrow $20,000 from its bank by
giving a new note payable to the bank for that amount. The new note
will be due in one year.
1. Calculate the expected cash collections for May.
2. Calculate the expected cash disbursements for merchandise
purchases for May.
3. Prepare a cash budget for May.
4. Prepare a budgeted income statement for May.
5. Prepare a budgeted balance sheet as of May 31.
5) You have been asked to prepare a December cash budget for
Ashton Company, a distributor of exercise equipment. The following
information is available about the companys operations:
The cash balance on December 1 is $40,000.
Actual sales for October and November and expected sales for
December are as follows:
Sales on account
Sales on account are collected over a three-month period as
follows: 20% collected in the month of sale, 60% collected in the
month following sale, and 18% collected in the second month
following sale. The remaining 2% is uncollectible.
Purchases of inventory will total $280,000 for December. Thirty
percent of a months inventory purchases are paid during the month
of purchase. The accounts payable remaining from Novembers
inventory purchases total $161,000, all of which will be paid in
Selling and administrative expenses are budgeted at $430,000 for
December. Of this amount, $50,000 is for depreciation.
A new web server for the Marketing Department costing $76,000
will be purchased for cash during December, and dividends totaling
$9,000 will be paid during the month.
The company maintains a minimum cash balance of $20,000. An open
line of credit is available from the companys bank to increase its
cash balance as needed.
1. Calculate the expected cash collections for December.
2. Calculate the expected cash disbursements for merchandise
purchases for December.
3. Prepare a cash budget for December. Indicate in the financing
section any borrowing that will be needed during the month. Assume
that any interest will not be paid until the following month.
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