Colter Company prepares monthly cash budgets. Relevant data fromoperating budgets for 2017 are as follows:

January February

Sales 360,000 $400,000

Direct materials purchases 120,000 125,000

Direct labor 90,000 100,000

Manufacturing overhead 70,000 75,000

Selling and administrative expenses 79,000 85,000

All sales are on account. Collections are expected to be 50% inthe month of sale, 30% in the first month following the sale, and20% in the second month following the sale. Sixty percent (60%) ofdirect materials purchases are paid in cash in the month ofpurchase, and the balance due is paid in the month following thepurchase. All other items above are paid in the month incurredexcept for selling and administrative expenses that include $1,000of depreciation per month.

Other data:

1. Credit sales: November 2016, $250,000; December 2016,$320,000.

2. Purchases of direct materials: December 2016, $100,000.

3. Other receipts: January Collection of December 31, 2016,notes receivable $15,000; FebruaryâProceeds from sale of securities $6,000.

4. Other disbursements: February Payment of $6,000 cashdividend.

The companys cash balance on January 1, 2017, is expected to be $60,000. The company wants to maintain a minimum cash balance of $50,000.

Prepare schedules for (1) expected collections from customersand (2) expected payments for direct materials purchases forJanuary and February.

Prepare a cash budget for January and February in columnarform.

1. Expected Collections from Customers for January is $326,000 and February $372,000

2. Expected Payments for Direct Materials for January is $112,000 and February $123,000

3. Ending Amount required (to make ending balance =$50,000) for January is 0 and February is $9.000. Cash Budget prepared in explanation below.

Explanation:

Schedule for Expected Collections & Payments and Cash Budget prepared below. Moreover, please note that all totaling amounts have been marked in Bold Letters.

1. Schedule of expected customer collections for January and February.

Particulars                                                                 JanuaryFebruary

50% of current month sales                                         180,000200,000

30% in of previous month' s sales (i.e., 30%                                                           of December's sales, 30% of January's sales)       96,000  108,000

20% of before previous month's sale (20%  

of November's sale, 20%of December's sales)             50,000   64,000

Total cash collections from customers                 326,000  372,000

2. Expected payments for direct material purchases:

Particulars                                                                   January   February

60 % of current month's purchases                            72,000     75,000

40% of previous months purchases (i.e 40%

of December's purchase, 40% of January's purchase) 40,000     48,000

Total payments for purchases                                      112,000    123,000

3.Cash budget for the months January and February:

Particulars                                                                       January   February

Cash Receipts:  

Collections from customers (from 1 above)                  326,000372,000

Collection of notes receivable                                          15,000     0

Sale of securities                                                            0           6000

Total cash receipts                                                        341,000378,000

Add: opening balance                                              $60,000   51,000

Total cash receipts and opening balance          $401,000  429,000

Cash payments:  

Expected payments for purchases (from 2 above) 112,000  123,000

DIrect labour                                                        90,000  100,000

manufacturing overhead                                                   70,000   75,000

Selling and administration expenses (less $1,000)  78,000   84,000

Cash dividends                                                                       0    6,000

Total cash payments                                              350,000  388,000

Ending cash balance (receipts +

opening balance -payments)                                $51,000   $41,000

Amount to be borrowed (to make

ending balance =$50,000)                                                         0    $9,000

Final ending balance of cash                               $51,000  $50,000

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