Clay Company has projected sales and production in units for the second quarter of the coming year as follows:

April May June
sales... 50,000 40,000 60,000
production... 60,000 50,000 50,000

Cash related production costs are budgeted at $5 per unit produced. Of these production costs, 40% are paid in the month in which they are incurred and the balance in the following month. Selling and adminitrative expenses will amount to $100,000 per month. The Accounts payable balance on March 31 totals $190,000 which will be paid in April.

All units are sold on account for $14 each. Cash Collections from sales are budgeted at 60% in the month os sale, 30% in the month following the month of sale, and 10% in the second month following the month of sale. Accounts receivalble on April 1 totaled $500,000($90,000 from Feb's sales and the remainder from March).

1. Prepare schedule for each month showing budgeted cash receopts for Clay Company.
2. Prepare schedule for each month showing budgeted cash disbursement.


This is what I got for Part. a

Sales: April May June
# of units x $14 $700,000.00 $560,000.00 $840,000.00

a. Budgeted cash receipts
April May June
Cash Collection
March, 31 balance $500,000.00 <------Is this correct??????
April
700000 x 0.6 $420,000.00
700000 x 0.3 $210,000.00
700000 x 0.1 $70,000.00
May
560000 x 0.6 $336,000.00
560000 x 0.3 $168,000.00
June
840000 x 0.6 $504,000.00
Total: $920,000.00 $546,000.00 $742,000.00

Can I just put $500k for April collection? Or Do I rearrange the March collection as scheduled? So... 500k - 90k(feb) = 410k. 410k x 0.75 = 307,500(+ 90,000) for April and 102,500 for May?? Or just simply put $500,000? Please let me know


For Part 2.

Production: April May June
# of units x $5 $300,000.00 $250,000.00 $250,000.00

From production cost
A/P beg. Balance $190,000.00
April
300000 x 0.4 $120,000.00
300000 x 0.6 $180,000.00
May
250000 x 0.4 $100,000.00
250000 x 0.6 $150,000.00
June
250000 x 0.4 $100,000.00
Total production: $310,000.00 $280,000.00 $250,000.00


Is this Correct? I am so confused with profit budgeting... Please help. Thank you.

Hi. Whew! Long problem. :-)

OK, as for the 500,000, no you can't put it all into April. I wish I could highlight in your post... but what you said about splitting into the 90,000, 307,500 & 102,500 is correct. That is probably the most difficult thing for students in a cash receipts budget, figuring how to handle the accts receivable balance. You actually did well figuring out the 307,500 & 102,500.

But since you seem to not know which is correct, a bit more explanation on that. We don't know sales for Febrary or March. However, we know that in Feb 60% would have been collected, leaving the other 40% in receivables. Then 30% would be collected in March, leaving only 10% in receivables. So that $90,000 from Feb is the 10%, to be collected in 2 months, April.

In March, 60% would have been collected. Leaving 40% in receivables. So the $410,000 balance from March is the 40%. 40% isn't collected in April, so no you can't put it there. 30% of it's collected in April and 10% in May. What you've figured out very well is that it's actually 75% and 25%. :-) (Your math is good.) So the 307,500 is collected in April (30% next month), and the $102,500 is collected in May (10% in two months).

You're not really showing how you got your totals. You've showed the split-down of the percents, but aren't showing when it's being collected. But I think if you make the above correction you'll have it. (June is correct.)

Again, for the payments, you're not actually showing when it's paid, only the 40/60% split. But each one is exactly $100,000 short. I'm going to assume you left off the Selling & Admin. I know it doesn't say it's cash. But this is a cash budget and it doesn't say that it's not, and much of the time they'll have S&A just total cash. So I would assume that it is. Otherwise they would have given you info about when it was actually paid like they did the production costs.

As confused as you may feel, this is actually a pretty good job.

Hi krissjm

Can you post the answer for the question
Thank you

mracct, we are not here just to give answers away to people's homework. We're here to help people try to understand it, or correct their work. Between what has already been posted of it, and my reply, at least spend some time trying to work it out -- if you post your answers, someone can check them.

Not to mention the post is from Feb. and I doubt krissjm is paying attention to this problem anymore.