Question 2

• Time: 20 minutes
• Total: 10 marks

For the second quarter of the following year Cloaks Company has projected sales and production in units as follows:

	Jan	Feb	Mar
Sales	50,000	52,000	57,000
Production	54,000	49,000	50,000

Cash-related production costs are budgeted at $14 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the next month. $127,000 per month will account for Selling and administrative expenses. On January 31 the accounts payable balance totals $227,000, which will be paid in February.

All units are sold on account for $19 each. Cash collections from sales are budgeted at 60% in the month of sale, 20% in the month following the month of sale, and the remaining 20% in the second month following the month of sale. On January 1 accounts receivable totaled $665,000 ($155,000 from Novembers sales and the remaining from December).

Required:

1. Prepare a schedule for each month showing budgeted cash disbursements for Cloaks Company. (5 marks)

2. Prepare a schedule for each month showing budgeted cash receipts for Cloaks Company.

(5 marks)