Lorch Company prepares monthly cash budgets. Relevant data from operating budgets for 2023 are as follows:

All sales are on account. Lorch expects collections to be 50% in the month of sale, 40% 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. Other data are as follows: 

1. Credit sales: November 2022, $200,000; December 2022, $280,000 

2. Purchases of direct materials: December 2022, $90,000.

3. Other receipts: January—collection of December 31, 2022, notes receivable $5,000; February— proceeds from sale of securities $6,000.

4. Other disbursements: February—payment of $20,000 for land.

The company expects its cash balance on January 1, 2023, to be $50,000. It wants to maintain a minimum cash balance of $40,000. 

Instructions 

a. Prepare schedules for 

(1) The expected collections from customers

(2) The expected payments for direct materials purchases.

b. Prepare a cash budget for January and February using columns for each month.

Transcribed Image Text:

Sales Direct materials purchases Direct labour Manufacturing overhead Selling and administrative expenses January $350,000 120,000 85,000 60,000 75,000 February $400,000 110,000 112,000 75,000 80,000