Problem - Per historical data, 75% of the Batter Up's credit sales are collected in the month following the sale, 12% are collected 2 months after the sale, 7% are collected three months after the sale and 6% are never collected.
Projected sales for the 4th quarter (October through December) of 2010 are comprised of the following:
| Batter UpProjected Sales BudgetFor the Quarter Ended December 31 |
| |
|
|
|
|
| |
Month |
4th
Quarter |
| |
October |
November |
December |
| Type of Sale |
|
|
|
|
| Cash sales (15%) |
$102,000 |
$109,500 |
$112,500 |
$324,000 |
| Credit sales (85%) |
578,000 |
620,500 |
637,500 |
1,836,000 |
| Total sales revenue |
$680,000 |
$730,000 |
$750,000 |
$2,160,000 |
The total cost of direct materials purchases in December is estimated at $562,000. Batter Up pays 55% of its direct materials purchases in the month of purchase and pays the remaining 45% in the month after purchase.
Additional estimated ending balance information for December 31 is as follows:
|
Account
|
December 31
Balance
|
|
Cash
|
$450,000
|
|
Allowance for uncollectible accounts
|
($765)
|
|
Property, plant and equipment
|
$3,343,200
|
|
Accumulated depreciation
|
$1,565,060
|
|
Common stock and retained earnings
|
$2,765,300
|
Employees are paid twice a month for the work they peform during the month; therefore, the direct labor cost of each month is paid in the current month.
Manufacturing overhead costs are paid in the month in which they are incurred with the exception of depreciation on the plant and equipment and insurance and property taxes on the plant.
Depreciation on the plant and equipment is a non-cash expense.
Insurance and property taxes on the plant are paid on a semiannual basis, in January and July, rather than on a monthly basis as reflected in the budget.
Operating expenses are paid in the month in which they are incurred with the exception of depreciation on the office equipment and bad debt expense related to credit sales.
Depreciation on the office equipment and bad debt expense are both non-cash expenses.
Batter Up has no budgeted capital expenditures.
Income taxes are paid on a quarterly basis and since Batter Up has a December 31 fiscal year end, the first income tax payment is not required until April 15.
Dividends are paid on a quarterly basis to its shareholders. Batter Up plans to pay $25,000 in cash dividends in January for the company's earnings in the fourth quarter of the previous year.
Because of the success of Batter Up, financing has not been required.
Required -
1. Prepare the 2011 cash collections budget for the 1st quarter for Batter Up.
2. Prepare the 2011 cash payments budget for the 1st quarter for Batter Up.
3. Prepare the 2011 combined cash budget for the 1st quarter for Batter Up.