Please attempt these questions before your 2nd tutorial in Week 12 6.20 Cash budget for revenues and expenses Maryborough Manufacturing has projected sales in units for four months of operations as follows: January February March April $25 000 $30 000 $32 000 $35 000 The product sells for $18 per unit. Twenty-five per cent of the customers are expected to pay in the month of sale and take a 3 per cent discount; 70 per cent are expected to pay in the month following sale. The remaining 5 per cent will never pay. It takes 2 kilograms of materials to produce a unit of product. The materials cost $0.75 per kilogram. In January, no raw materials are in beginning inventories, but managers want to end each month with enough materials for 20 per cent of the next month's 4 production. The entity pays for 60 per cent of its materials purchases in the month of purchase and 40 per cent in the following month. It takes 0.5 hour of labour to produce each unit. Labour is paid $15.00 per hour and is paid in the same month as worked. Overhead is estimated to be $2.00 per unit plus $25 000 per month (including depreciation of $12 000). Overhead costs are paid as incurred. Maryborough will begin January with no finished goods or work in process inventory. The managers wish to end each month with 25 per cent of the following month's sales in finished goods inventory. They will end each month with no work in process. Required Prepare a cash budget listing cash receipts and disbursements for February. The entity will begin February with a cash balance of $80 000. **Important correction** Please note that the table refers to sales volume not sales revenue. Therefore, it should read 25,000 units, 30,000 units etc rather than $25,000 and $30,000. **Additional hints to help you prepare for this question** (1) First, compute the cash receipts from customers for February. This requires you to consider sales in both January and February, and the timing of when we receive cash from customers. Note also that you need to first work out sales for January and February by multiplying price with estimated sales volume. [Key answer: cash receipt for February is $445,950] (2) Next, calculate cash disbursements. To do so, you need to (i) work out the production levels required for January and February; (ii) based on the expected production levels you can then work out the required raw material purchases for February, and therefore the cash disbursements relating to raw material purchases for February; (iii) calculate other cash disbursements - i.e., labour costs and overhead. [Key answers: production required in February is 30,500 units, material purchases in February is $46,425; total cash disbursement in February is $353,765) (3) Finally, prepare the February cash budget by listing the cash receipts and cash disbursements
