Chapter 22, Problem 7BPSB

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 1-

To prepare:

Schedule of expected cash collections of credit sales.

Answer to Problem 7BPSB

Connick Company
Schedule of expected cash collections
Particulars	January	February	March	April
Budgeted/ Actual sales	396,000	495,000	418,000	412,500
Collections from accounts receivable-
Collection of January months' sales			91,080
Collection of months' sales			173,250	113,850
Collection of March months' sales			167,200	146,300
Collection of April months' sales				165,000
Total collections of credit sales			431,530	425,150

Explanation of Solution

March-

  $\begin{array}{l}CollectionofJanuarymonths\text{'}sales=Januarymonths\text{'}sales*23\%\hfill \\ CollectionofJanuarymonths\text{'}sales=\$396,000*23\%\hfill \\ CollectionofJanuarymonths\text{'}sales=\$91,080\hfill \end{array}$

  $\begin{array}{l}CollectionofFebruarymonths\text{'}sales=Februarymonths\text{'}sales*\text{ 35}\%\hfill \\ CollectionofFebruarymonths\text{'}sales=\$495,000*35\%\hfill \\ CollectionofFebruarymonths\text{'}sales=\$173,250\hfill \end{array}$

  $\begin{array}{l}CollectionofMarchmonths\text{'}sales=Marchmonths\text{'}sales*\text{ 4}0\%\hfill \\ CollectionofMarchmonths\text{'}sales=\$418,000*\text{ 4}0\%\hfill \\ CollectionofMarchmonths\text{'}sales=\$167,200\hfill \end{array}$

Total collection of credit sales of March month is calculated as under-

  $\begin{array}{l}\begin{array}{l}TotalcollectionofcreditsalesofMarch=CollectionofJanuarymonths\text{'}sales\\ +CollectionofFebruarymonths\text{'}sales+CollectionofMarchmonths\text{'}sales\end{array}\hfill \\ TotalcollectionofcreditsalesofMarch=\$91,080+\$173,250+\$167,200\hfill \\ TotalcollectionofcreditsalesofMarch=\$431,530\hfill \end{array}$

April-

  $\begin{array}{l}CollectionofFebruarymonths\text{'}sales=Februarymonths\text{'}sales*\text{ 23}\%\hfill \\ CollectionofFebruarymonths\text{'}sales=\$495,000*\text{ 23}\%\hfill \\ CollectionofFebruarymonths\text{'}sales=\$113,850\hfill \end{array}$

  $\begin{array}{l}CollectionofMarchmonths\text{'}sales=Marchmonths\text{'}sales*\text{ 35}\%\hfill \\ CollectionofMarchmonths\text{'}sales=\$418,000*35\%\hfill \\ CollectionofMarchmonths\text{'}sales=\$146,300\hfill \end{array}$

  $\begin{array}{l}\begin{array}{l}CollectionofAprilmonths\text{'}sales=Aprilmonths\text{'}sales*\text{ 4}0\%\hfill \\ CollectionofAprilmonths\text{'}sales=\$412,500*\text{ 4}0\%\hfill \end{array}\\ CollectionofAprilmonths\text{'}sales=\$165,000\end{array}$

Total collection of credit sales of April month is calculated as under-

  $\begin{array}{l}\begin{array}{l}TotalcollectionofcreditsalesofApril=CollectionofFebruarymonths\text{'}sales\\ +CollectionofMarchmonths\text{'}sales+CollectionofAprilmonths\text{'}sales\end{array}\hfill \\ TotalcollectionofcreditsalesofApril=\$113,850+\$146,300+\$165,000\hfill \\ TotalcollectionofcreditsalesofApril=\$425,150\hfill \end{array}$

Conclusion:

Thus, schedule of expected cash collections of credit sales is prepared.

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 2-

To prepare:

Schedule of budgeted ending inventories.

Answer to Problem 7BPSB

Connick Company
Schedule of budgeted ending inventory
Particulars	January	February	March	April
Next period's budgeted sales (units)	22,500	19,000	18,750	21,000
Ratio of inventory of future sales	20%	20%	20%	20%
Expected budgeted sales (units)	4,500	3,800	3,750	4,200
Add: Safety stock (units)	100	100	100	100
Budgeted ending inventory (units)	4,600	3,900	3,850	4,300

Explanation of Solution

Given,

• January sales = 18,000 units
• February sales = 22,500 units
• March sales = 19,000 units
• April sales = 18,750 units
• May sales = 21,000 units

  $\begin{array}{l}Budgetedendinginventory=(Nextperiod’sbudgetedsales*Ratioofinventoryoffuturesales)\\ +Safetystock\end{array}$

January-

  $\begin{array}{l}Budgetedendinginventory=\left(Februarysales*Ratioofinventoryoffuturesales\right)+Safetystock\hfill \\ Budgetedendinginventory=\left(22,500*20\%\right)+100\hfill \\ Budgetedendinginventory=4,500+100\hfill \\ Budgetedendinginventory=\text{ 4,6}00\hfill \end{array}$

February

  $\begin{array}{l}Budgetedendinginventory=\left(Marchsales*Ratioofinventoryoffuturesales\right)+Safetystock\hfill \\ Budgetedendinginventory=\left(19,000*20\%\right)+100\hfill \\ Budgetedendinginventory=3,800+100\hfill \\ Budgetedendinginventory=\text{ 3,9}00\hfill \end{array}$

March

  $\begin{array}{l}Budgetedendinginventory=\left(Aprilsales*Ratioofinventoryoffuturesales\right)+Safetystock\hfill \\ Budgetedendinginventory=\left(18,750*20\%\right)+100\hfill \\ Budgetedendinginventory=3,750+100\hfill \\ Budgetedendinginventory=3,850\hfill \end{array}$

April

  $\begin{array}{l}Budgetedendinginventory=\left(Maysales*Ratioofinventoryoffuturesales\right)+Safetystock\hfill \\ Budgetedendinginventory=\left(21,000*20\%\right)+100\hfill \\ Budgetedendinginventory=4,200+100\hfill \\ Budgetedendinginventory=4,300\hfill \end{array}$

Conclusion:

Thus, schedule of budgeted ending inventory is prepared.

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 3-

To prepare:

Merchandise purchase budget.

Answer to Problem 7BPSB

Connick Company
Merchandise purchase budget
Particulars	January	February	March	April
Budgeted ending inventory	4,600	3,900	3,850	4,300
Add: Budgeted sales for the period		22,500	19,000	18,750
Required inventory		26,400	22,850	23,050
Deduct: Beginning inventory		(4,600)	(3,900)	(3,850)
Units to be purchased		21,800	18,950	19,200
Rate per unit		$12	$12	$12
Dollar amount of budgeted purchases		$261,600	$227,400	$230,400

Explanation of Solution

Given,

Budgeted ending inventory- (Calculated in requirement 2)

• January = 4,600 units
• February = 3,900 units
• March = 3,850 units
• April = 4,300 units

Budgeted sales for the period

February = 22,500 units

March = 19,000 units

April = 18,750 units

Units to be purchased is calculated as follows-

  $Unitstobepurchased=Budgetedendinginventory+Budgetedsalesfortheperiod-Beginninginventory$

February

  $\begin{array}{l}Unitstobepurchased=3,900+22,500-4,600\hfill \\ Unitstobepurchased=21,800units\hfill \end{array}$

March

  $\begin{array}{l}Unitstobepurchased=3,850+19,000-3,900\hfill \\ Unitstobepurchased=18,950units\hfill \end{array}$

April

  $\begin{array}{l}Unitstobepurchased=4,300+18,750-3,850\\ Unitstobepurchased=19,200units\end{array}$

Dollar amount of budgeted purchases is calculated as follows-

  $Dollaramountofbudgetedpurchases=Unitstobepurchased*Rateperunit$

February

  $\begin{array}{l}Dollaramountofbudgetedpurchases=21,800*\$12\hfill \\ Dollaramountofbudgetedpurchases=\$261,600\hfill \end{array}$

March

  $\begin{array}{l}Dollaramountofbudgetedpurchases=18,950*\$12\hfill \\ Dollaramountofbudgetedpurchases=\$227,400\hfill \end{array}$

April

  $\begin{array}{l}Dollaramountofbudgetedpurchases=19,200*\$12\hfill \\ Dollaramountofbudgetedpurchases=\$230,400\hfill \end{array}$

Conclusion:

Thus, merchandise purchase budget is prepared.

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 4-

To prepare:

Schedule of cash payments for purchases.

Answer to Problem 7BPSB

Connick Company
Schedule of expected cash payments for purchases
Particulars	February	March	April
Budgeted purchases	261,600	227,400	230,400
Cash disbursements for purchases-
Payment of February month's purchases		183,120
Payment of March month's purchases		68,220	159,180
Payment of April month's purchases			69,120
Total cash disbursements of purchases		251,340	228,300

Explanation of Solution

Budgeted purchases- (calculated in requirement 3)

• February= 261,600
• March = 227,400
• April = 230,400

March-

  $\begin{array}{l}PaymentofFebruarymonth\text{'}spurchases=Februarymonth\text{'}spurchases*\text{ 7}0\%\\ PaymentofFebruarymonth\text{'}spurchases=\$261,600*\text{ 7}0\%\\ PaymentofFebruarymonth\text{'}spurchases=\$183,120\\ \\ PaymentofMarchmonth\text{'}spurchases=Marchmonth\text{'}spurchases*\text{ 3}0\%\\ PaymentofMarchmonth\text{'}spurchases=\$227,400*\text{ 3}0\%\\ PaymentofMarchmonth\text{'}spurchases=\$68,220\end{array}$

Total cash disbursements of purchases is calculated as follows-

  $\begin{array}{l}Totalcashdisbursementsofpurchases=PaymentofFebruarymonth\text{'}spurchases\\ +PaymentofMarchmonth\text{'}spurchases\\ Totalcashdisbursementsofpurchases=\$183,120+\$68,220\\ Totalcashdisbursementsofpurchases=\$251,340\end{array}$

April-

  $\begin{array}{l}PaymentofMarchmonth\text{'}spurchases=Marchmonth\text{'}spurchases*\text{ 7}0\%\\ PaymentofMarchmonth\text{'}spurchases=\$227400*\text{ 70}\%\\ PaymentofMarchmonth\text{'}spurchases=\$159,180\\ \\ PaymentofAprilmonth\text{'}spurchases=Aprilmonth\text{'}spurchases*\text{ 3}0\%\\ PaymentofAprilmonth\text{'}spurchases=\$230,400*\text{ 3}0\%\\ PaymentofAprilmonth\text{'}spurchases=\$69,120\end{array}$

Total cash disbursements of purchases is calculated as follows-

  $\begin{array}{l}Totalcashdisbursementsofpurchases=PaymentofMarchmonth\text{'}spurchases\\ +PaymentofAprilmonth\text{'}spurchases\\ Totalcashdisbursementsofpurchases=\$159,180+\$69,120\\ Totalcashdisbursementsofpurchases=\$228,300\end{array}$

Conclusion:

Thus, schedule of expected cash disbursements of purchases is prepared.

To determine

Concept Introduction:

Cash Budget-

Cash budget is a budget which helps to estimate the cash inflows and cash outflows of the business during a specific period of time. It includes all the revenues, expenses paid as well as any loan taken and its payment. It includes all those transactions which are made in cash. It helps to assess whether company has sufficient cash available to operate.

Requirement 5-

To prepare:

Cash Budget

Answer to Problem 7BPSB

Connick Company
Cash Budget
Particulars	March	April
Beginning cash balance	50,000	58,070
Add: Budgeted cash receipts	431,530	425,150
Total cash available	481,530	483,220
Cash Disbursements-
Cash payments for purchases	251,340	228,300
Selling and administrative expenses	160,000	160,000
Total cash disbursements	411,340	388,300
Total cash available over disbursements	70,190	94,920
Loan Activity-
Loan form bank	0	0
Interest payment @12% per annum	120	0
Repayment of loan to bank	12,000	0
Ending cash balance	58,070	94,920
Ending loan balance	0	0

Explanation of Solution

Given,

Beginning cash balance = $50,000

Budgeted cash receipts- (Calculated in requirement 1)

• March - $431,530
• April - $425,150

Cash payments for purchases- (Calculated in requirement 4)

• March - $251,340
• April - $228,300

  $\begin{array}{l}Sellingandadministrativeexpenses=TotalSellingandadministrativeexpenses/12months\hfill \\ Sellingandadministrativeexpenses=\$1,920.000/12months\hfill \\ Sellingandadministrativeexpenses=\$160,000\hfill \end{array}$

  $Totalcashdisbursements=Cashpaymentsforpurchases+Sellingandadministrativeexpenses$

March-

  $\begin{array}{l}Totalcashdisbursements=\$251,340+\$160,000\hfill \\ Totalcashdisbursements=\$411,340\hfill \end{array}$

April-

  $\begin{array}{l}Totalcashdisbursements=\$228,300+\$160,000\hfill \\ Totalcashdisbursements=\$388,300\hfill \end{array}$

Total cash available over disbursements is calculated as follows-

  $Totalcashavailableoverdisbursements=Budgetedcashreceipts-Totalcashdisbursements$

March-

  $\begin{array}{l}Totalcashavailableoverdisbursements=\$481,530-\$411,340\hfill \\ Totalcashavailableoverdisbursements=\$70,190\hfill \end{array}$

April-

  $\begin{array}{l}Totalcashavailableoverdisbursements=\$483,220-\$388,300\hfill \\ Totalcashavailableoverdisbursements=\$94,920\hfill \end{array}$

Interest payment-

March

Opening balance of Loan = $12,000

  $\begin{array}{l}Interest=\$12,000*1\%\hfill \\ Interest=\$120\hfill \end{array}$

Conclusion:

Thus, cash budget is prepared.