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Schedule of expected collections, matierals payments

Lorch Company prepares monthly cash budgets. Relevant data from operating budgets for 2010 are:

January February
Sales $360,000 $400,000
Direct Material Purchases 100,000 110,000
Direct Labor 100,000 115,000
Manufacturing overhead 60,000 75,000
Selling and administrative expense 75,000 80,000

All sales are on account. Collections are expected to be 60% in the month of sale, 30% in the first month following the month of sale, and 10% in the second month following the month of sale. Thirty percent (30%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the month of purchase. All other items above are paid in the month incurred. Depreciation has been omitted from manufacturing overhead and selling and administrative expenses.

Other data:
1. Credit sales: November 2009, $200,000; December 2009, $280,000
2. Purchases of direct materials : December 2009, $90,000
3. Other receipts: January - Collection of December 31, 2009 interest receivable $3,000
February - Proceeds from sale of securities $5,000
4. Other disbursements: February â?" payment of $20,000 for land.

The company's cash balance on January 1, 2010, is expected to be $60,000. The company wants to maintain a minimum cash balance of $50,000.


1. Prepare schedules for (1) expected collections from customers and (2) expected payments for direct materials purchases.
2. Prepare a cash budget for January and February in columnar form.

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Solution Summary

Response helps in computing schedule of expected collections, matierals payments, cash budget