Sierra Star prepares monthly cash budgets. Relevant data from operating budgets for 2010 are:
January February
Sales $525,000 $600,000
Direct materials purchases 142,500 165,000
Direct labour 120,000 142,500
Manufacturing overhead 90,000 112,500
Selling and administrative expenses 112,500 127,500
All sales are on account. Collections are expected to be 50% in the first month of sale, 30% in the first month following the sale, and 20% in the second month following the sale. Of direct material purchases, 40% are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred. Depreciation has been excluded from manufacturing overhead and selling and administrative expenses.
Other data:
1. Credit sales: November 2009, $300,000; December 2009, $450,000.
2. Purchases of direct materials: December 2009, $90,000.
3. Other receipts: January - collection of 31 December 2009, interest receivable $3,000; February - proceeds from sale of investments $5,000.
4. Other disbursements: February - payment of $20,000 for land.
The cash balance on 1 January 2010 is expected to be $60,000. Sierra Star wants to maintain a minimum cash balance of $50,000.
Required:
a) Prepare schedules for
1) expected collections from customers and 2
) expected payments for direct materials purchases.
b) Prepare a cash budget for January and February in columnar form.