Managerial Accounting

Budgeting (Problem Solving)

Question # 1:
Norman Corporation has prepared the following sales budget:

Month Expected Sales

May $84,000
June 100,000
July 92,000
August 116,000
September 98,000

Credit sales are 80% of total sales. Collections are 80% in the month of sale, 15% in the month
following the sale. The remaining 5% is expected to be uncollectible.

Required: Prepare a schedule of cash collections for June through August.

Question # 2:

Lyle Corporation has the following information:

Month Budgeted Purchases

January $230,000
February 190,000
March 200,000
April 220,000
May 210,000

Purchases are paid for in the following manner:

10% in the month of purchase

80% in the month after purchase
10% two months after purchase

Required: Prepare a schedule of cash disbursements for purchases for March through May.

Question # 3:

Carson Company has gathered the following information:

April 30 ending cash balance $45,000

Dividends paid in May $12,000
Cash expenditures in May for operating expenses $36,800
Depreciation expense in May $4,500
Cash collections in May $89,000
Merchandise purchases paid in cash in May $56,200
Purchase equipment for cash in May $17,500

Carson Company desires to keep minimum cash balance of $10,000.

Required: Prepare a cash budget for May, and indicate whether or not Carson Company
meets minimum cash requirements.
Answer Q # 1:

June July August Total

Cash sales $20,000 $18,400 $23,200 $61,600

Collections of
credit sales from:
Current month 64,000 58,880 74,240 197,120
Previous month 10,080 12,000 11,040 33,120

Total collections $94,080 $89,280 $108,480 $291,840

Answer Q # 2:

March April May Total

For January $23,000 $23,000

For February 152,000 $19,000 171,000
For March 20,000 160,000 $20,000 200,000
For April 22,000 176,000 198,000
For May ______ ______ 21,000 21,000

Total purchases $195,000 $201,000 $217,000 $613,000

Answer Q # 3:

Cash Budget:

May

Beginning cash balance $45,000

Cash collections 89,000

Total cash available $134,000

Cash disbursements:
Merchandise purchases $56,200
Operating expenses 36,800
Equipment purchase 17,500
Payment of dividends 12,000 122,500

Ending cash balance $11,500

The ending cash of $11,500 exceeds the minimum cash requirement of $10,000.