Homework Topic 6
EXERCISE 8–1 Schedule of Expected Cash Collections
Midwest Products is a wholesale distributor of leaf rakes. Thus, peak sales occur in August of
each year as shown in the company’s sales budget for the third quarter, given below:
July August September Total
Budgeted sales (all on $600,000 $900,000 $500,000 $2,000,000
account)
From past experience, the company has learned that 20% of a month’s 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. May sales totaled $430,000, and June sales totaled $540,000.
Required:
1. Prepare a schedule of expected cash collections from sales, by month and in total,
for the third quarter:
July August September Total
Amount
$600,000 $900,000 $500,000 $2,000,000
May Sales
10% $43,000 $43,000
June Sales
70% $378,000 $378,000
10% $54,000 $54,000
July Sales
20% 120,000.00 $120,000
70% $420,000 $420,000
10% $60,000 $60,000
August Sales
20% 180,000.00 $180,000
70% $630,000 $630,000
September Sales
20% 100,000.00 $100,000
Total $ 541,000 $ 654,000 $ 790,000 $ 1,985,000
2. Assume that the company will prepare a budgeted balance sheet as of September
30. Compute the accounts receivable as of that date.
Homework Topic 6
Months Sales Uncollected By Percentage Accounts Receivable
July $600,000 0% 0
August $900,000 10% $90,000
September $500,000 80% $400,000
Total $490,000
EXERCISE 8–2 Production Budget
Crystal Telecom has budgeted the sales of its innovative mobile phone over the next four
months as follows:
Months Sales in Units
July 30,000
August 45,000
September 60,000
October 50,000
The company is now in the process of preparing a production budget for the third quarter.
Past experience has shown that end-of-month finished goods inventories must equal 10% of
the next month’s sales. The inventory at the end of June was 3,000 units.
Required:
Prepare a production budget for the third quarter showing the number of units to be
produced each month and for the quarter in total.
July August September Quarter
Budget Sales 30,000 45,000 60,000 135,000
End-Inventories 4,500 6,000 5,000 15,500
Total Needs 34,500 51,000 65,000 150,500
Beginning Inventories (3,000) (4,500) (6,000) 3,000
Required Production 31,500 46,500 59,000 137,000
Homework Topic 6
EXERCISE 8–7 Cash Budget
Forest Outfitters is a retailer that is preparing its budget for the upcoming fiscal year.
Management has prepared the following summary of its budgeted cash flows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Total cash receipts $340,000 $670,000 $410,000 $470,000
Total cash disbursements $530,000 $450,000 $430,000 $480,000
The company’s beginning cash balance for the upcoming fiscal year will be $50,000. The
company requires a minimum cash balance of $30,000 and may borrow any amount needed
from a local bank at a quarterly interest rate of 3%. The company may borrow any amount
at the beginning of any quarter and may repay its loans, or any part of its loans, at the end
of any quarter. Interest payments are due on any principal at the time it is repaid.
Required:
Prepare the company’s cash budget for the upcoming fiscal year.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year
Cash balance 50,000 30,000 74,900 54,900 50,000
Total cash receipts 340,000 670,000 410,000 470,000 1,890,000
Total cash available 390,000 700,000 484,900 524,900 2,099,800
total cash disbursements 530,000 450,000 $430,000 $480,000 1,890,000
Excess (deficiency) (140,000) 250,000 54,900 44,900 50,000
Borrowings 170,000 0 0 0 170,000
Repayment 0 (170,000) 0 0 (170,000)
Interest 0 (5,100) 0 0 (5,100)
Total financing 170,000 (175,100) 0 0 (5100)
Ending Cash balance 30,000 74,900 54,900 44,900 44,900
Khetam A. Alsulihim
2201530
JA1
