1. Explanation Cash budget: The cash budget is a budget prepared to estimate the future needs of cash in an organization and this budget estimates all the cash inflows and outflows for a period. The amount of cash to be taken and to be disbursed is estimated from the cash budget. Collection of receivable: Collection of receivable is a recovery of cash from which the organization issues invoice. It becomes necessary when the amount fall due and is not paid. So it is essential to collect amount in a timely manner. Collection of payable: Collection of payable shows the amount owned for goods or services on credit. It includes all payable due for payments. Working note: Projected sales Particular Number of units (A) Sales price $ (B) Revenue $ ( ( A ) × ( B ) ) May 480 650 312,000 June 520 650 338,000 July 750 650 487,500 August 500 650 325,000 September 460 650 299,000 Table (4) Collection of receivables: In the month of July, Receivable = ( 15 % of May month sales + 45 % of June month sales + 40 % of July month sales ) =15% × $ 312 , 000 + 45 % × $ 338 , 000 + 40 % × $ 487 , 500 = $ 46 , 800 + $ 152 , 100 + $ 195 , 000 = $ 393 , 900 In the month of August, Receivable = ( 15 % of June sales + 45 % of July month sales + 40 % of August month sales ) =15% × $338,000+ 45 % × $ 487 , 500 + 40 % × $ 325 , 000 = $ 50 , 700 + $ 219 , 375 + $ 130 , 000 = $ 400 , 075 In the month of September, Receivable = ( 15 % of July sales + 45 % of August month sales + 40 % of September month sales ) =15% × $487,500+ 45 % × $ 325 , 000 + 40 % × $ 299 , 000 = $ 73 , 125 + $ 146 , 250 + $ 119 , 600 = $ 338 , 975 Working note: Calculation of direct material consumed: Material wood consumed, Particulars Number of units produced (A) Unit per board (yard feet) (B) Total unit consumed (yard feet) ( ( A ) × ( B ) ) July 750 9 6750 August 500 9 4500 September 460 9 4140 Table (5) Material fiber glass consumed, Particulars Number of units produced (A) Unit per board (yard) (B) Total unit consumed (yard) ( ( A ) × ( B ) ) July 750 10 7500 August 500 10 5000 September 460 10 4600 Table (6) Calculation of direct material cost 2. To determine Whether management will be able to pay off $60,000 one year note in the month of October and if not what actions are recommended to management. 3. To determine Whether company is able to maintain $14,000 in all three month. If not, what suitable suggestion is for cash management. 4. To determine To explain: The reason for which the managers prepare the cash budget in addition to the revenue, expenses and income budget.

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ISBN: 9781323440834

Author: Horngren

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Question

Chapter 6, Problem 6.38P

To determine

To prepare: The cash budget for the month July to September and supporting schedule of receivables and payables.

Given information:

Average selling price is $650.

40% of invoices will be paid in the month of invoiced.

45% will be paid in the following month.

15% of invoice will be paid two months after the month of invoice.

Variable manufacturing overhead is $7 per direct manufacturing labor hour.

Variable marketing costs are driven by the number of sales visit.

Fixed manufacturing overhead costs is $7500 per month

Fixed non manufacturing overhead cost is $4500 per month.

To determine

Whether management will be able to pay off $60,000 one year note in the month of October and if not what actions are recommended to management.

To determine

Whether company is able to maintain $14,000 in all three month. If not, what suitable suggestion is for cash management.

To determine

To explain: The reason for which the managers prepare the cash budget in addition to the revenue, expenses and income budget.

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Chapter 6 Solutions

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Ch. 6 - What are the four elements of the budgeting cycle?Ch. 6 - Define master budget.Ch. 6 - Strategy, plans, and budgets are unrelated to ore...Ch. 6 - Budgeted performance is a better criterion than...Ch. 6 - Production managers and marketing managers are...Ch. 6 - Budgets meet the cost-benefit test. They force...Ch. 6 - Define rolling budget. Give an example.Ch. 6 - Outline the steps in preparing an operating...Ch. 6 - The sales forecast is the cornerstone for...Ch. 6 - Prob. 6.10Q

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