Derby Company prepares monthly cash budgets. Relevant data from operating budgets for 2014 are:

All sales are on account. Collections are expected to be 60% in the month of sale, 25% in the first month following the sale, and 15% in the second month following the sale. Thirty percent (30%) of direct materials purchases are paid in cash in the month of purchase, and the balance due is paid in the month following the purchase. All other items above are paid in the month incurred. Depreciation has been excluded from manufacturing overhead and selling and administrative expenses.

Other data:

1. Credit sales: November 2013, $200,000; December 2013, $290,000.

2. Purchases of direct materials: December 2013, $90,000.

3. Other receipts: January—collection of December 31, 2013, interest receivable $3,000; February—proceeds from sale of securities $5,000.

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

The company’s cash balance on January 1, 2014, is expected to be $50,000. The company wants to maintain a minimum cash balance of $40,000.

Instructions

(a) Prepare schedules for

(1) Expected collections from customers and

(2) Expected payments for direct materials purchases.

(b) Prepare a cash budget for January and February in columnar form.

January February Sales Direct materials purchases Manufacturing overhead $350,000 $400,000 120,000 115,000 60,000 75,000 80,000 Selling and administrative expenses 75,000