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Budgets : key information

*Please describe how to calculate.

ABC company started business on January 1, 2010. The company estimated that sales for the first six months would be as attaches:

*Please look at the attachment

The Company sells all items on account and expects collections of accounts receivable to be as follows: 60% in the month of the sale, and the remaining 40% in the month after the sale.

A) Compute the expected cash collections during the months of January, February, March, April, May, and June.

B) The company has decided that finished goods inventory at the end of each month should ideally be equal to 40% of next month's sales. What should budgeted production be for each of the first four months?

C) It takes two pounds of raw material to make one unit of finished product. The company wants to keep an ending inventory of raw material equal to 30% of next month's production needs. How many pounds of raw material should be purchased in each of the first three months?

D) The raw material costs $2 per pound. The company pays for 70% of its purchases during the month of purchase and the remainder in the following month. How much cash will be disbursed during the month of March for the purchase of of raw material?

E) The projected cash balance on March 1 is $13,500. What is the estimated cash balance at the end of the month? (Prepare a formal cash budget for the month of March.)


Solution Summary

The solution explains how to calculate the expected cash collection, budgeted production, purchases and the ending cash balance