Problem 2

Presented below are selected budget data items for Globe Corporation for a three-month period:

Sales Direct materials Direct labor Variable overhead Fixed overhead Selling and admin. costs Fixed loan payments

OCTOBER $820,000 $123,000 $90,000 $65,600 $140,000 $312,000 $155,000

NOVEMBER $780,000 $119,000 $85,000 $62,400 $140,000 $310,000 $155,000

DECEMBER $850,000 $125,000 $96,000 $68,000 $140,000 $315,000 $155,000

Sales were $770,000 in August and $790,000 in September. Material usage was $115,000 in August and $118,000 in September. All sales are on account, and accounts receivable is historically collected 15% in the month of sale, 65% in the month following sales, and the remainder two months after the sale. Materials are paid for 40% in the month used and 60% the following month. All other expenses are paid in the month incurred. The cash balance was $35,000 at the beginning of October, and management wants to determine if the company will have enough cash to pay a year-end bonus.

Prepare a three-month cash budget, including a schedule for cash collections and material payments.

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