Reference no: EM132540929

Derby Company prepares monthly cash budgets. Relevant data from operating budgets for 2017 are:

                                                        January                            February

Sales                                         $350,000                  $400,000

Direct materials purchases                120,000                 110,000

Direct labor                                   85,000                 112,000

Manufacturing overhead                      60,000                 75,000

Selling and administrative expenses       75,000                 80,000

All sales are on account. Collections are expected to be 50% in the month of sale, 40% in the first month following the sale, and 10% 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 over-head and selling and administrative expenses.

Other data:

1. Credit sales: November 2016, $200,000; December 2016, $280,000.

2. Purchases of direct materials: December 2016, $80,000.

3. Other receipts: January-collection of December 31, 2016, interest receivable $5,000

February-proceeds from sale of securities $6,000.

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

The company's cash balance on January 1, 2017, is expected to be $50,000. The company wants to maintain a minimum cash balance of $40,000.

Instructions

Question (a) Prepare schedules for expected collections from customers and expected payments for direct materials purchases.

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