Instructions
Week 4
Cash Budgeting
There are two problems
The first is a collections pattern, where you have to calculate the collections per month using a waterfall technique.
The second is a lengthy cash budgeting problem which begins with sales forecasts through material purchases and disbursements
Collections problem
Problem 1
Budgeted Sales on Account: XXXXXXXXXXCollection Schedule:
June $ 53,000 In month of sale 55%
July $ 63,000 In 1st month after sale 20%
August $ 72,000 In 2nd month after sale 15%
September $ 80,000 In 3rd month after sale 8%
October $ 89,000 Uncollectible 2%
November $ 100,000 100%
December $ 82,000
Dos Tacos, Inc., a manufacturer of salsa, has the following historical collection pattern for its credit
sales.
55 percent collected in the month of sale.
20 percent collected in the first month after sale.
15 percent collected in the second month after sale.
8 percent collected in the third month after sale.
2 percent uncollectible.
The sales on account have been budgeted for the last seven months as follows:
June .................................................................................... $ 53,000
July ...................................................................... XXXXXXXXXX63,000
August ................................................................. XXXXXXXXXX72,000
September ............................................................ XXXXXXXXXX80,000
October ............................................................... XXXXXXXXXX89,000
November ......................................................... XXXXXXXXXX100,000
December ........................................................... XXXXXXXXXX82,000
Required:
XXXXXXXXXXCompute the estimated total cash collections during October from credit sales.
XXXXXXXXXXCompute the estimated total cash collections during the fourth quarter from credit sales.
3. Make sure to show the calculations by month during the 4th quarter (Oct-Dec)
Cash budget problem
Problem 2
Sales figures
20X0 20X1
Q4 Q1
S frame unit sales 50,000 55,000
S sales price $ 10 $ 10
L frame unit sales 40,000 45,000
L sales price $ 15 $ 15
40% Percent of sales made for cash in the quarter of sale
60% Percent of sales made on credit
Collections
80% of cu
ent quarter's credit sales
20% of previous quarter's credit sales
Purchases 20X0 20X1
Q4 Q1
S frame unit purchases 50,000 55,000
S manufacturing cost per unit $7 $7
L frame unit purchases 40,000 45,000
L manufacturing cost per unit $10 $10
80% of cu
ent quarter's purchases paid in the cu
ent quarte
20% of previous quarter's purchases paid in the cu
ent quarte
Other expenses
Selling and admin. expenses $ 100,000 per quarte
Payment of dividends $ 50,000 per quarte
Prepare the following:
1 Sales budget
2 Cash receipts budget
3 Cash disbursements budget
4 Summary cash budget
HCJ Corporation is completing their cash budget for the following year. HCJ Corporation is a manufacturer of metal picture frames. The firm’s two product lines are designated as S (small frames; 5 x 7 inches) and L (large frames; 8 x 10 inches). Here is the provided budget information:
XXXXXXXXXXSales in the fourth quarter of 20x0 are expected to be 50,000 S frames and 40,000 L frames. Over the next year, sales in each product line will grow by 5,000 units each quarter over the previous quarter. For example, S frame sales in the first quarter of 20x1 are expected to be 55,000 units.
XXXXXXXXXXHCJ's sales history indicates that 60 percent of all sales are on credit, with the remainder of the sales in cash. The company’s collection experience shows that 80 percent of the credit sales are collected during the quarter in which the sale is made, while the remaining 20 percent is collected in the following quarter. (For simplicity, assume the company is able to collect 100 percent of its accounts receivable.)
XXXXXXXXXXThe S frame sells for $10, and the L frame sells for $15. These prices are expected to hold constant
throughout 20x1.
XXXXXXXXXXTotal manufacturing cost per unit is $7 for the S frame and $10 for the L frame. All manufacturing cost purchases are made on account, and 80 percent of each quarter’s purchases are paid in cash during the same quarter as the purchase. The other 20 percent is paid in the next quarter. Units sold equal units purchased.
XXXXXXXXXXSelling and administrative expenses, all paid in cash, are $100,000 per quarter.
XXXXXXXXXXDividend payments are $50,000 per quarter.
XXXXXXXXXXThe beginning cash balance for Q1 of 20X1 is $95,000.
Prepare the following for each of the four quarters of 20x1:
1. Sales budget
2. Cash receipts budget
3. Cash disbursements budget
4. Summary cash budget