Question
A cash budget is being prepared for Hotels Inc for the month of May. The following information has been gathered to assist in preparing the
A cash budget is being prepared for Hotels Inc for the month of May. The following information has been gathered to assist in preparing the budget:
Budgeted sales and production requirements are as follows:
Budgeted Sales | $ 650,000 |
Production requirements |
|
Raw material to be used | $ 301,000 |
Direct labour cost | 85,000 |
Customers are allowed a 2% cash discount on accounts paid within 10 days after the end of the month of sale. Only 50% of the payments made in the month following sale fall within the discount period.
Accounts receivable outstanding at April 30 were as follows:
Month | Sales | Accounts | Percentage of | Percentage to |
|
| receivable at | sales | be collected in |
|
| April 30 | Uncollected at | May |
|
|
| April 30 |
|
January | $ 340,000 | $8,500 | 2.5% | ? |
February | 530,000 | 31,800 | 6.0% | ? |
March | 470,000 | 47,000 | 10.0% | ? |
April | 550,000 | 550,000 | 100.0% | ? |
All January receivables outstanding will be collected in May and the collection pattern since the time of the sale will be the same in May as in previous months.
Raw material purchases are paid in the month following the purchase and $ 320,000 in accounts payable for purchases was outstanding at the end of April.
Accrued wages on April 30 were $ 11,000. All May payroll amounts will be paid within the month of May.
Budgeted operating expenses and overhead cost for May are as follows:
Overhead and other charges |
| Total |
Indirect labour | $ 34,000 |
|
Property taxes | 1,500 |
|
Depreciation | 25,000 |
|
Utilities | 1,500 |
|
Wage benefits | 9,000 |
|
Fire insurance expired | 1,500 |
|
Amortization of patents | 5,000 |
|
Spoilage of materials in the | 1,500 | $ 79000 |
ware house |
|
|
Sales Salaries |
| 45,000 |
Administrative salaries |
| 15,000 |
Property taxes are paid in July of each year.
Utilities are billed and paid within the month.
Shipping cost for May will be $ 1,000 all payable in the month.
The cash balance at April 30th was $5,750.
Required
Prepare a Cash collections schedule for the month of May.
Prepare a cash budget for May in good form. Hotels Inc require a minimum cash balance of $ 5,500 at the end of each month and therefore a line of credit is set up to allow for borrowings to cover any deficiency in the ending cash balance
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