Question 3 (Total 20 points)

PP Corporation produced mud cups. Data regarding the store's operations follow:

	November	December	January
Budgeted Sales ($)	$ 50,000	$ 80,000	$ 49,000
Cash payments for other costs ($)	$ 26,000	$ 11,600	$ 10,000
Number of unit to produce	20,000	23,000	19,000

1. The other costs included direct labor costs, manufacturing overhead costs, operating expenses and equipment purchases.

2. Sales collections are expected to be 20% in the month of sale, 75% in the month following the sale, and 5% uncollectible.

3. Three pounds of direct material is needed per unit at $0.50 per pound. Ending inventory of direct materials should be 20% of next month's production needs.

4. Of each month's direct materials purchased, 30% are paid for in the month of purchase, while the remainder is paid for in the month following purchase.

5. The company has a policy that the ending cash balance in each month must be at least $5,000. The company has a line of credit with a local bank. It would borrow in increments of $1,000 at the beginning of each month and pay down in increments of $1,000 at the end of the year. The interest rate on these loans is 2% per month simple interest (not compounded) and the company would also pay the accumulated interest at the end of the year on the funds borrowed in the year.

6. At October 31, the cash balance is $6,300, and the net Account receivable (Octobers credit sales balance) is $36,500. The allowance for uncollectible account at 31 October is $1,000. The accounts payable (Octobers credit purchase balance) is $20,000.

Required:

Show schedule, not just calculations, to get full credits.

a. (4 points) Prepare a Schedule of Expected Cash Collections for November and December.

b. (8 points) Prepare a Schedule of Cash Payment Budget for Direct Materials purchased in November and December.

c. (8 points) Prepare a Schedule of Cash Budgets for November and December.