Prepare a cash budget for January 2018. Show supporting schedules for the calculation of collection of receivables and payments of accounts payable, and for disbursements for fixed manufacturing and nonmanufacturing overhead. Skulas is interested in maintaining a minimum cash balance of $120,000 at the end of each month. Will Skulas be in a position to pay the $160,000 dividend on January 31? Why do Skulas’s managers prepare a cash budget in addition to the revenue, expenses, and operating income budget?
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Skulas, Inc., manufactures and sells snowboards. Skulas manufactures a single model, the Pipex. In late 2017, Skulas’s
Materials and Labor Requirement
Direct Materials
Wood 9 Boards Feet (b.f.) per snowboard
Fiberglass 10 Yards per snowboard
Direct manufacturing labor 5 hours per snowboard
Skulas’s CEO expects to sell 2,900 snowboards during January 2018 at an estimated retail price of $650 per board. Further, the CEO expects 2018 beginning inventory of 500 snowboards and would like to end January 2018 with 200 snowboards in stock.
Direct Materials Inventories
Begining Inventory 1/1/2018 Ending Inventory 1/31/2018
Wood 2,040 b.f. 1,540 b.f.
Fiberglass 1,040 yards 2,040 yards
Alternative Text Variable manufacturing overhead is $7 per direct manufacturing labor-hour. There are also $81,000 in fixed
Other data include:
2017 Unit Price 2018 Unit Price
Wood $32.00 per b.f. $34.00 per b.f.
Fiberglass $8.00 per yard $9.00 per yar
Direct manu. labor $28.00 per hour $29.00 per hour
Question:
Budgeted balances at January 31, 2018 are as follows:
Cash ?
Inventory ?
Property, plant and Equipment (net) $1,175,600
Accounts Payable ?
Long-term liabilities 182,000
Selected budget information for December 2017 follows:
Cash balance, December 31, 2017 $124,000
Budgeted Sales $1,650,000
Budgeted materials purchases $820,000
Customer invoices are payable within 30 days. From past experience, Skulas’s accountant projects 40% of invoices will be collected in the month invoiced, and 60% will be collected in the following month. Accounts payable relates only to the purchase of direct materials. Direct materials are purchased on credit with 50% of direct materials purchases paid during the month of the purchase, and 50% paid in the month following purchase. Fixed manufacturing overhead costs include $64,000 of
Questions:
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Prepare a
cash budget for January 2018. Show supporting schedules for the calculation of collection of receivables and payments of accounts payable, and for disbursements for fixed manufacturing and nonmanufacturing overhead. -
Skulas is interested in maintaining a minimum cash balance of $120,000 at the end of each month. Will Skulas be in a position to pay the $160,000 dividend on January 31?
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Why do Skulas’s managers prepare a cash budget in addition to the revenue, expenses, and operating income budget?
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Prepare a budgeted balance sheet for January 31, 2018 by calculating the January 31, 2018 balances in
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(a) cash
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(b) accounts receivable
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(c) inventory
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(d) accounts payable and
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(e) plugging in the balance for stockholders’ equity.
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The cash budget would be prepared by recording the beginning cash balance, cash collected during the period, and cash payment during the month. The required production units during the month would be computed by deducting the beginning balance of finished units from the sum of the ending inventory unit and sales units. The total direct labor hour would be computed by multiplying the production units by the required direct labor hour per unit.
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