Lorch Company prepares monthly cash budgets. Relevant data from operating budgets for 2013 are as follows:
______________________________ January _______________ February
Sales ....................................... $350,000 .......................... $400,000
Direct materials purchases .............. 120,000 ............................. 110,000
Direct labour .............................. 85,000 .............................. 112,000
Manufacturing overhead ................ 60,000 ................................ 75,000
Selling and administrative expenses ... 75,000 ............................... 80,000
All sales are on account. Lorch expects collections to be 50% in the month of sale, 40% in the fi rst 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, except for selling and administrative expenses as well as depreciation.
Other data are as follows:
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, 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, 2013, 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 and (2) the expected payments for direct materials purchases.
(b) Prepare a cash budget for January and February using columns for each month?