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Chapter 22: Q18SE (page 1232)

Using sensitivity analysis in budgeting

Refer to the Victors schedule of cash receipts from customers that you prepared in Short Exercise S22-15. Now assume that Victors’s sales are collected as follows:

40% in the month of the sale

20% in the month after the sale

39% two months after the sale

1% never collected

Prepare a revised schedule of cash receipts for January and February

Short Answer

Expert verified

Answer

Total cash receipts from the customers are $513,520 in the month of January and $438,730 in the month of February.

Step by step solution

01

Meaning of schedule of cash receipts

A cash receipt schedule is created to record the cash received from customers.

02

Preparation of schedule of cash receipts

Particulars

January

February

Total budgeted sales

$702,000

$349,000

Cash receipts from customers:



40 % in the month of sale

$280,800

$139,600

20% in the month after sale

$407,000*20% =$81,400

$702,000*20% =$140,400

39% two months after sales

$388,000*39% =$151,320

$407,000*39% =$158,730

Total cash receipts from customers

$513,520

$438,730

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Most popular questions from this chapter

Why is the sales budget considered the cornerstone of the master budget?

Preparing a financial budget—schedule of cash receipts and schedule of cash payments

Agua Cool is a distributor of bottled water. For each of the items, compute the amount of cash receipts or payments Agua Cool will budget for September. The solution to one item may depend on the answer to an earlier item.

a. Management expects to sell equipment that cost \(14,000 at a gain of \)7,000. Accumulated depreciation on this equipment is \(5,000.

b. Management expects to sell 7,100 cases of water in August and 9,000 cases in September. Each case sells for \)14. Cash sales average 20% of total sales, and credit sales make up the rest. Three-fourths of credit sales are collected in the month of the sale, with the balance collected the following month.

c. The company pays rent and property taxes of $4,500 each month. Commissions and other selling expenses average 30% of sales. Agua Cool pays one-half of commissions and other selling expenses in the month incurred, with the balance paid the following month.

How does the master budget for a merchandising company differ from a manufacturing company?

How is the predetermined overhead allocation rate determined?

Preparing an operating budget—cost of goods sold budget Butler Company expects to sell 1,650 units in January and 1,550 units in February. The company expects to incur the following product costs:

Direct materials cost per unit \( 85

Direct labor cost per unit 60

Manufacturing overhead cost per unit 55

The beginning balance in Finished Goods Inventory is 250 units at \)200 each for a total of $50,000. Butler uses FIFO inventory costing method. Prepare the cost of goods sold budget for Butler for January and February.
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