Nigh Company prepares monthly cash budgets. Relevant data from operating budgets for 2012 are as follows:
________________________________ January _____________ February
Sales ........................................ $350,000 ....................... $400,000
Direct materials purchases ................ 120,000 ........................ 110,000
Direct labour ................................. 85,000 ........................ 115,000
Manufacturing overhead .................... 60,000 ......................... 75,000
Selling and administrative expenses ...... 75,000 ......................... 80,000
All sales are on account. The company expects collections to be 60% in the month of sale, 30% in the first month following the sale, and 10% in the second month following the sale. It pays 30% of direct materials purchases in cash in the month of purchase and the balance due in the month following the purchase. It pays all other items above in the month incurred. Depreciation has been excluded from manufacturing overhead and selling and administrative expenses. Other data:
1. Credit sales: November 2012, $200,000; December 2012, $280,000
2. Purchases of direct materials: December 2012, $90,000
3. Other receipts: January-collection of December 31, 2012, interest receivable, $3,000; February-proceeds from sale of securities, $5,000
4. Other disbursements: February-payment of $20,000 cash for land The company's cash balance on January 1, 2013, is expected to be $50,000. The company wants to keep a minimum cash balance of $40,000.
Instructions
(a) Prepare schedules for (1) the expected collections from customers and (2) the expected payments for direct materials purchases.
(b) Prepare a cash budget for January and February, with columns for each month?