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Production and Cash Budget Analysis

The document provides cost and sales information for the Johnston Company over multiple months. It asks to prepare production budgets for December and January, a direct materials purchases budget for December, and a cash budget for December. It also provides a sales budget and cash collection information for Duffy Corporation to prepare a cash collections schedule for July through September. Finally, it provides cash-related financial information for Perry Company for May and asks to prepare a cash budget for May to determine if it meets its minimum cash requirements.

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252 views2 pages

Production and Cash Budget Analysis

The document provides cost and sales information for the Johnston Company over multiple months. It asks to prepare production budgets for December and January, a direct materials purchases budget for December, and a cash budget for December. It also provides a sales budget and cash collection information for Duffy Corporation to prepare a cash collections schedule for July through September. Finally, it provides cash-related financial information for Perry Company for May and asks to prepare a cash budget for May to determine if it meets its minimum cash requirements.

Uploaded by

udbhav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Question 1

The Johnston Company had the following costs based on the production and sale of
40,000 units:
Direct Materials . . . . . . . . . . . . . . . . . . . $5 per unit
Direct Labour. . . . . . . . . . . . . . . . . . . . . $8 per unit
Variable Manufacturing Overhead . . . . . . $3 per unit
Fixed Manufacturing Overhead . . . . . . . . $4 per unit
Sales Commissions . . . . . . . . . . . . . . . . 10% of Sales
Fixed Selling & Administrative costs . . . . .$9 per unit
Other information:
The company had the following actual sales for November and budgeted sales for
December, January, and February:
November December January February
Sales (in units) . . . . 45,000 50,000 60,000 30,000 units
Selling Price per unit . $40/unit $42/unit $45/unit $35/unit
The company has a policy of always maintaining the following inventory levels:
Finished Goods Inventory = 1,000 units plus 10% of next month's sales.
Direct Materials Inventory = $2,000 plus 30% of next month's production
requirements.
The company's sales and collection history shows that 10% of all sales are for
cash and the accounts receivable are collected in the following way:
70% in the month of the sale
28% in the month after the sale
A cash balance of $10,000 is maintained at all times (any shortages are borrowed
and any excess funds are used to retire debt)
Amortization expense is 70% of the fixed manufacturing overhead and 40% of the
fixed selling and administrative costs.
The company expects to purchase equipment for $800,000 in December with a
$400,000 down payment and the balance to be paid in 90 days.

1. Prepare "Production Budgets" for the months of December and January.


2. Prepare a "Direct Materials Purchases Budget" (in $'s) for December.
3. Prepare a "Cash Budget" for December.
2) Duffy Corporation has prepared the following sales budget:

Month Cash Sales Credit Sales


May $16,000 $68,000
June 20,000 80,000
July 18,000 74,000
August 24,000 92,000
September 22,000 76,000

Collections are 40% in the month of sale, 45% in the month following the sale, an
d 10% two months following the sale. The remaining 5% is expected to be uncolle
ctible.

Required:

Prepare a schedule of cash collections for July through September.

3) Perry Company has gathered the following information:

April 30, cash balance, $90,000


Dividends paid in May, $24,000
Cash expenditures in May for operating expenses, $73,600
Amortization expense in May, $9,000
Cash collections in May, $178,000
Merchandise purchases paid in cash in May, $112,400
Purchased equipment for cash in May, $35,000

Perry desires to keep a minimum cash balance of $20,000.

Required:

Prepare a cash budget for May, and indicate whether or not Perry meets
minimum cash requirements.

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