Ex.

122
Timmons Company has budgeted sales revenue as follows:
January
February
March
April
May
June

Budgeted Sales Revenues

$ 65,000
90,000
110,000
50,000
55,000
30,000

Past experience has indicated that 80% of sales each month are on credit and that collection of
credit sales occurs as follows: 60% in the month of sale, 30% in the month following the sale,
and 5% in the second month following the sale. The other 5% is uncollectible.
Instructions
Prepare a schedule which shows expected cash receipts from sales for the months of April, May,
and June.

Solution 122

(2025 min.)
TIMMONS COMPANY
Expected Cash Receipts from Sales
For the Quarter Ended June 30
April

February sales
Credit sales: ($90,000 .80 .05)
March sales
Credit sales:
($110,000 .80 .30)
($110,000 .80 .05)
April sales
Credit sales:
($50,000 .80 .60)
($50,000 .80 .30)
($50,000 .80 .05)
Cash sales: ($50,000 .20)
May sales
Credit sales:
($55,000 .80 .60)
($55,000 .80 .30)
Cash sales: ($55,000 .20)
June sales
Credit sales: ($30,000 .80 .60)

May

June

$ 3,600

26,400
$ 4,400
24,000
12,000
$ 2,000
10,000

26,400
13,200
11,000
14,400

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Budgetary Planning

Cash sales: ($30,000 .20)

Total cash receipts

$64,000

$53,800

6,000
$35,600

Ex. 123
Finagan Company has budgeted sales revenues as follows:
June
$54,000
36,000
$90,000

Credit sales
Cash sales
Total sales

July
$ 58,000
102,000
$160,000

August
$ 36,000
78,000
$114,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale and
the remaining 40% will be collected in the following month. Purchases of inventory are all on
credit and 50% is paid in the month of purchase and 50% in the month following purchase.
Budgeted inventory purchases are:
June
July
August

$120,000
100,000
42,000

Other cash disbursements budgeted: (a) selling and administrative expenses of $19,000 each
month, (b) dividends of $41,400 will be paid in July, and (c) purchase of a computer in August for
$12,000 cash.
The company wishes to maintain a minimum cash balance of $20,000 at the end of each month.
The company borrows money from the bank at 9% interest if necessary to maintain the minimum
cash balance. Borrowed money is repaid in months when there is an excess cash balance. The
beginning cash balance on July 1 was $20,000. Assume that borrowed money in this case is for
one month.
Instructions
Prepare a cash budget for the months of July and August. Prepare separate schedules for
expected collections from customers and expected payments for purchases of inventory.

Solution 123

(2535 min.)
FINAGAN COMPANY
Cash Budget
For the Two Months of July and August

Beginning cash balance

Add: Receipts
Collections from customers
Cash sales
Total receipts
Total available cash
Less: Disbursements
Purchases
Selling and administrative expenses
Dividends

July
$ 20,000

August
$ 20,000

56,400
102,000
158,400
178,400

44,800
78,000
122,800
142,800

110,000
19,000
41,400

71,000
19,000

6-3

Budgetary Planning

Computer purchase
Total disbursements
Excess (deficiency) of available cash over disbursements
Financing
Borrowings
Repayments
Ending cash balance
Solution 123

170,400
8,000

12,000
102,000
40,800

12,000
$ 20,000

(12,090)*
$ 28,710

(cont.)

*12,000 9% 1/12 = $90 + $12,000 = $12,090.

Schedule of Expected Collections from Customers
Credit sales
June (54,000 40%)
July ($58,000)
August ($36,000)
Total collections

July
$21,600
34,800
$56,400

August
$23,200
21,600
$44,800

Schedule of Expected Payments for Purchase of Inventory

Inventory purchases
June ($120,000)
July ($100,000)
August ($42,000)
Total payments

July

August

50,000

$50,000
21,000
$71,000

$ 60,000
$110,000

Ex. 125
The management of Horton Company estimates that credit sales for August, September, October,
and November will be $180,000, $210,000, $230,000, and $160,000, respectively. Experience
has shown that collections are made as follows:
In month of sale
In first month after sale
In second month after sale

25%
60%
10%

Instructions
Determine the collections from customers in October and November. Show all computations.

Solution 125

(1318 min.)

Collections from Customers

August Sales
($180,000 .10)
September Sales
($210,000 .60)
($210,000 .10)
October Sales
($230,000 .25)

October
$ 18,000

November
$

-0-

126,000
21,000
57,500

6-4

Test Bank for Managerial Accounting, Second Edition

($230,000 .60)
November Sales
($160,000 .25)
Total collections

138,000
-0$201,500

40,000
$199,000

Ex. 126
Swine Skins specializes in Super Bowl memorabilia. Therefore, the companys sales are
seasonal. Budgeted figures are presented below.
Quarter
1
2
3
4
Budgeted Sales
$560,000
$200,000
$160,000
$380,000
From past experience, Swine Skins has learned that of credit sales, 70% are collected in the
month of sale and 30% are collected in the month following the sale.
Instructions
Assuming the fourth quarter sales for he previous year totaled $420,000, determine Swine Skins
cash collections for each of the four quarters.
Solution 126

(1214 min.)
Quarter

Accounts receivable

1
$126,000

392,000

$168,000

($420,000 .30)
First quarter
($560,000 .70)

($560,000 .30)

Second quarter

140,000

($200,000 .70)

$ 60,000

($200,000 .30)

Third quarter

112,000

($160,000 .70)

$ 48,000

($160,000 .30)

Fourth quarter

266,000

($380,000 .70)
Total cash collections

$518,000

$308,000

$172,000

$314,000

Ex. 127
Hawksley Company needs a cash budget for the month of April, 2003. The companys controller
has provided you with the following information and assumptions:

6-5

Budgetary Planning

a.The April 1, 2003 cash balance is expected to be $14,560.

b. All sales are on account. Credit sales are collected over a three-month period60 percent in
the month of sale, 30 percent in the month following sale, and 10 percent in the second month
following sale. Actual sales for February and March were $60,000 and $55,000, respectively.
Aprils sales are budgeted at $70,000.
c. Marketable securities are expected to be sold for $38,000 during the month of April.
d. The controller estimates that direct materials totaling $53,000 will be purchased during April.
Fifty percent of a months raw materials purchases are paid in the month of purchase with the
remaining 50 percent paid in the following month. Accounts payable for March purchases total
$16,150, which will be paid in April.

e. During April, direct labor costs are estimated to be $28,000.

f.

Manufacturing overhead is estimated to be 50 percent of direct labor costs, Further, the

controller estimates that approximately 10 percent of the manufacturing overhead is
depreciation on the factory building and equipment.

g. Selling and administrative expenses are budgeted at $34,000 for April. Of this amount,
$16,000 is for depreciation.
h. During April, Hawksley Company plans to buy a new delivery van costing $17,500. The
company will pay cash for the van.
i.

Hawksley Company owes $9,000 in income tax, which must be paid in April.

j.

Hawksley Company must maintain a minimum cash balance of $10,000. To bolster the cash
position as needed, an open line of credit is available from the bank.

Instructions
Prepare the following: (1) a schedule of cash collections, (2) a schedule of cash payments for raw
materials, and (3) a cash budget for the month of April. Indicate in the financing section any
borrowing that will be necessary during the month.

Solution 127

(1820 min.)

1. Cash Receipts

2. Cash Payments for Merchandise

.60 $70,000 = $42,000

.30 $55,000 = 16,500
.10 $60,000 =
6,000
Total
$64,500
3.

.50 $53,000 =
$26,500
Accounts payable 16,150
Total
$42,650
HAWKSLEY COMPANY
Cash Budget
For the month ending April 30, 2003

Beginning cash balance

Add: Receipts
Collections from customers
Sales of securities

$ 14,560
$64,500
38,000

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Test Bank for Managerial Accounting, Second Edition

Total receipts
Total Available cash
Less: Disbursements
Direct materials
Direct labor
Manufacturing overhead ($28,000 .50) .90
Selling and administrative expenses ($34,000 $16,000)
Purchase of van
Income tax expense
Total disbursements
Excess (deficiency) of available cash over disbursements
Financing
Borrowings
Ending cash balance

102,500
117,060
42,650
28,000
12,600
18,000
17,500
9,000
127,750
(10,690)
20,690
$ 10,000