TO Industries prepares monthly cash budgets. The followingbudget information is available for April and May 2019:
| April | May |
Sales | $650,000 | $700,000 |
Direct material purchases | 220,000 | 240,000 |
Direct labor | 175,000 | 180,000 |
Manufacturing overhead | 120,000 | 130,000 |
Selling and administrative expenses | 150,000 | 150,000 |
All sales are credit sales. The company expects to collect 60%from customers in the month of the sale and the remaining 40% infirst month following the sale. The company purchases directmaterials on account. The company pays for 75% of the purchases inthe month of the purchases and the remaining 25% in the first monthfollowing the purchase. Direct labor, manufacturing overhead, andselling and administrative expenses are paid in cash in the monthincurred.
Additional information:
- March 2019 credit sales were $600,000
- March 2019 purchases of direct materials were $200,000
- The company’s cash balance on April 1, 2019 is expected to be$90,000
- The company wants to maintain a minimum cash balance of $80,000and has a line of credit in the amount of 1,000,000, with an annualinterest rate of 6%, available to borrow if the budgeted cashbalance falls below that level. Any amounts borrowed on the line ofcredit at the end of a month require a cash interest payment in thesubsequent month. If the ending cash balance in a month exceeds theminimum balance, the excess amount is used to repay any amountsborrowed on the line of credit.
Required
- Prepare a schedule of cash collections from credit sales forApril and May 2019.
- Prepare a schedule of cash disbursements for direct materialpurchases for April and May 2019.
- Prepare a cash budget for April and May 2019 in columnarformat.
