10-24 Production and Materials Purchases Budgets
Production Budget:
Budgeted sales
Desired ending inventory (5% of next quarter’s sales)
Total units needed
Beginning inventory (5% of this quarter’s sales)
Total units to produce
2nd Quarter
76,000
+ 3,400
79,400
– 3,800
75,600
3rd Quarter
68,000
+ 4,800
72,800
– 3,400
69,400
Budgeted Purchases of Direct Materials (in lbs.) for the 2nd quarter:
Budgeted production
Direct materials per unit
Direct materials needed in production
Desired ending inventory of direct materials
(20% of 208,200)
Total direct materials needed
Beginning inventory of DM (20% of 226,800)
Budgeted purchases of direct materials (lbs.)
2nd Quarter
75,600
x
3
226,800
+
41,640
268,440
– 45,360
223,080
3rd Quarter
69,400
x
3
208,200
10-30 Cash Budget
1. Total credit sales in November
Percentage collectible
Total amount collectible from credit sales in November
Percentage collected in the month following month of sales
Budgeted collections in December from November credit sales
$240,000
× 95%
$228,000
× 40%
$ 91,200
2. Cash sales in January
Collections from credit sales in January:
Total collectible from credit sales
$180,000 × 95% =
Percentage to be collected in January
Collections from credit sales in December:
Total collectible from credit sales
$360,000 × 95% =
Percentage to be collected in January
Budgeted total cash receipts in January
$ 60,000
3. Total inventory purchases in November:
For November sales:
$320,000 × 0.3 × 0.6 =
For December sales:
$460,000 × 0.7 × 0.6 =
Percentage of Nov. purchases to be paid in December
Payment in December for purchases in November
Budgeted purchases in December:
For December sales:
$460,000 × 0.3 × 0.6 =
For January sales:
$240,000 × 0.7 × 0.6 =
Percentage of Dec. purchases to be paid in December
Payment in December for purchases in December
Budgeted payment in December for inventory purchases
$171,000
×
60%
$342,000
×
40%
$ 57,600
193,200
$ 82,800
100,800
$102,600
136,800
$299,400
$250,800
×
75%
$188,100
$183,600
× 25%
$45,900
$234,000
10-32 Accounts Receivable Collections and Sensitivity Analysis (50 minutes)
Original Assumptions/Data:
Actual credit sales for March
Actual credit sales for April
Estimated credit sales for May
Estimated collections in month of sale
Estimated collections in first month following month of sale
Estimated collections in the second month after month of sale
Estimated provision for bad debts in month of sale
$130,000
$160,000
$210,000
25%
60%
10%
5%
1. Estimated cash receipts from collections in May:
Collection from sales in March (0.10 × $130,000)
Collection from sales in April (0.60 × $160,000)
Collection from sales in May (0.25 × $210,000)
Total estimated cash collections in May
$13,000
$96,000
$52,500
$161,500
2. Gross accounts receivable, May 31st:
From credit sales made in April (0.15 × $160,000)
From credit sales made in May (0.75 × $210,000)
Estimated gross accounts receivable, May 31st
$24,000
$157,500
$181,500
3. Net accounts receivable, May 31st:
Gross accounts receivable, May 31st
Less: Allowance for uncollectible accounts:
From credit sales made in April
From credit sales made in May
Net accounts receivable, May 31st
4. Revised data/assumptions:
Actual credit sales for March
Actual credit sales for April
Estimated credit sales for May
Estimated collections in month of sale
Estimated collections in first month following month of sale
Estimated collections in the second month after month of sale
Estimated provision for bad debts in month of sale
a. Estimated cash receipts from collections in May:
Collection from sales in March (0.10 × $130,000)
Collection from sales in April (0.25 × $160,000)
Collection from sales in May (0.60 × $210,000)
Total cash collections in May
$181,500
$8,000
$10,500
$163,000
$130,000
$160,000
$210,000
60%
25%
10%
5%
$13,000
$40,000
$126,000
$179,000
b. Gross accounts receivable, May 31st:
From credit sales made in April (0.15 × $160,000)
From credit sales made in May (0.40 × $210,000)
Gross accounts receivable, May 31st
$24,000
$84,000
$108,000
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Exercise 10-32: Accounts Receivable Collections and Sensitivity Analysis
Background
Papst Company is preparing its cash budget for the month of May. The following information
concerning its accounts receivable:
Actual credit sales for March
Actual credit sales for April
Estimated credit sales for May
5. The principal benefit is the accelerated receipt of cash, which the company can
potentially employ to pay down debt, reduce borrowing, invest, etc. Principal costs
would relate to whatever programs are needed to secure the accelerated collection
of cash. These costs could include personnel, travel, mailings, telephone, incentive
programs, and costs related to customer relations.