Derby Company prepares monthly cash budgets. Relevant data from operating budgets for 2017 are:

		January		February
Sales		$350,000		$400,000
Direct materials purchases		110,000		120,000
Direct labor		85,000		115,000
Manufacturing overhead		60,000		75,000
Selling and administrative expenses		75,000		80,000

All sales are on account. Collections are expected to be:

• 60% in the month of sale,
• 25% in the first month following the sale, and
• 15% in the second month following the sale.

As to cash payments (disbursements):

• 30% of direct materials purchases are paid in cash in the month of purchase,
• 70% is paid in the month following the purchase.

All other items above are paid in the month incurred.

Depreciation has been excluded from manufacturing over-head and selling & admin expenses.

Other data:

1. Credit sales: November 2016, $200,000; December 2016, $290,000.
2. Purchases of direct materials: December 2016, $90,000.
3. Other receipts:

Jan - collection of Dec 31, 2016, interest receivable $3,000;

Feb - proceeds from sale of securities $5,000.

4. Other disbursements: Feb - payment of $20,000 for land.

The companys cash balance on January 1, 2017, is expected to be $50,000. The company wants to maintain a minimum cash balance of $40,000.

Instructions

1. 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.

1. #1

Expected Collections from Customer	January	February
November ($200,000)		0
December (290,000)
January (350,000)
February (400,000)
Total Collections

1. #2

Expected Payments for Direct Materials	January	February
December ($ 90,000)		0
January (110,000)
February (120,000)
Total Collections

Mercer Farm Supply Company

Budgeted Income Statement

For the Six Months Ending June 30, 2017

	January	February
Beginning Cash Balance	$ 50,000	$ 49,500
ADD: Receipts:
Collection from customers (a) #1
Total Receipts
Total Available Cash
LESS: Disbursements:
Direct Materials (a) #2
Total Disbursements
Excess (deficiency) of Available Cash over Cash Disbursements
Financing:
Ending Cash Balance