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Chapter 22: Q7TI (page 1221)

Crowley Company projects the following sales:

January February March

Cash sales (25%) \( 5,000 \) 5,500 \( 6,000

Sales on account (75%) 15,000 16,500 18,000

Total sales \) 20,000 \( 22,000 \) 24,000

Crowley collects sales on account in the month after the sale. The Accounts Receivable balance on January 1 is \(13,500, which represents December’s sales on account. Crowley projects the following cash receipts from customers:

January February March

Cash receipts from cash sales \) 5,000 \( 5,500 \) 6,000

Cash receipts from sales on account 13,500 15,000 16,500

Total cash receipts from customers \( 18,500 \) 20,500 $ 22,500

Recalculate cash receipts from customers if total sales remain the same but cash sales are only 20% of the total.

Short Answer

Expert verified

The cash receipts from customers in the month of January, February, and March is$18,400, $20,400, and $22,400 respectively.

Step by step solution

01

Meaning of Accounts Receivable

Accounts receivable refers to the business entity's sales amount the customers will pay in the future. It is a current asset of the company.

02

Statement showing projected sales

Particulars

January

February

March

Cash sales (20% of total sales)

$4,000

$4,400

$4,800

Credit sales (80% of total sales)

$16,000

$17,600

$19,200

Total Sales

$20,000

$22,000

$24,000

03

Step 3: Statement showing the projected cash receipts from customer

Particulars

January

February

March

Cash sales

$4,000

$4,400

$4,800

Credit sales

$14,400

$16,000

$17,600

Total cash receipts from customers

$18,400

$20,400

$22,400

Working note:

Calculation of amount of credit sales of January

Credit sales of january=$13,50075%×80%=$14,400

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Most popular questions from this chapter

Completing a comprehensive budgeting problem—merchandising company Alliance Printing Supply of Baltimore has applied for a loan. Its bank has requested a budgeted income statement for April 2018 and a balance sheet at April 30, 2018. The March 31, 2018, balance sheet follows:

As Alliance Printing Supply’s controller, you have assembled the following additional information:

a. April dividends of \(7,000 were declared and paid.

b. April capital expenditures of \)16,300 budgeted for cash purchase of equipment.

c. April depreciation expense, \(1,000.

d. Cost of goods sold, 40% of sales.

e. Desired ending inventory for April is \)22,400.

f. April selling and administrative expenses include salaries of \(37,000, 30% of which will be paid in cash and the remainder paid next month.

g. Additional April selling and administrative expenses also include miscellaneous expenses of 10% of sales, all paid in April.

h. April budgeted sales, \)89,000, 80% collected in April and 20% in May.

i. April cash payments of March 31 liabilities incurred for March purchases of inventory, \(8,600.

j. April purchases of inventory, \)8,600 for cash and $37,400 on account. Half the credit purchases will be paid in April and half in May.

Requirements

1. Prepare the sales budget for April.

2. Prepare the inventory, purchases, and cost of goods sold budget for April.

3. Prepare the selling and administrative expense budget for April.

4. Prepare the schedule of cash receipts from customers for April.

5. Prepare the schedule of cash payments for selling and administrative expenses for April.

6. Prepare the cash budget for April. Assume the company does not use short-term financing to maintain a minimum cash balance.

7. Prepare the budgeted income statement for April.

8. Prepare the budgeted balance sheet at April 30, 2018.

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

Preparing an operating budget—sales, production, direct materials, direct labor, overhead, COGS, and S&A expense budgets The Irwin Batting Company manufactures wood baseball bats. Irwin’s two primary products are a youth bat, designed for children and young teens, and an adult bat, designed for high school and college-aged players. Irwin sells the bats to sporting goods stores, and all sales are on account. The youth bat sells for \(35; the adult bat sells for \)50. Irwin’s highest sales volume is in the first three months of the year as retailers prepare for the spring baseball season. Irwin’s balance sheet for December 31, 2018, follows:

Other data for Irwin Batting Company for the first quarter of 2019:

a. Budgeted sales are 1,400 youth bats and 3,300 adult bats.

b. Finished Goods Inventory on December 31, 2018, consists of 700 youth bats at \(15 each and 550 adult bats at \)10 each.

c. Desired ending Finished Goods Inventory is 220 youth bats and 300 adult bats; FIFO inventory costing method is used.

d. Direct materials requirements are 40 ounces of wood for youth bats and 70 ounces of wood for adult bats. The cost of wood is \(0.10 per ounce.

e. Raw Materials Inventory on December 31, 2018, consists of 90,000 ounces of wood at \)0.10 per ounce.

f. Desired ending Raw Materials Inventory is 90,000 ounces (indirect materials are insignificant and not considered for budgeting purposes).

g. Each bat requires 0.4 hours of direct labor; direct labor costs average \(26 per hour.

h. Variable manufacturing overhead is \)0.30 per bat.

i. Fixed manufacturing overhead includes \(1,300 per quarter in depreciation and \)14,977 per quarter for other costs, such as insurance and property taxes.

j. Fixed selling and administrative expenses include \(13,000 per quarter for salaries; \)3,500 per quarter for rent; \(1,400 per quarter for insurance; and \)450 per quarter for depreciation. k. Variable selling and administrative expenses include supplies at 1% of sales.

Requirements

1. Prepare Irwin’s sales budget for the first quarter of 2019.

2. Prepare Irwin’s production budget for the first quarter of 2019.

3. Prepare Irwin’s direct materials, direct labor budget, and manufacturing overhead budget for the first quarter of 2019. Round the predetermined overhead allocation rate to two decimal places. The overhead allocation base is direct labor hours.

4. Prepare Irwin’s cost of goods sold budget for the first quarter of 2019.

5. Prepare Irwin’s selling and administrative expense budget for the first quarter of 2019.

What is a master budget?

Budgeting benefits List the three key benefits companies get from preparing a budget.
See all solutions

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