SCHEDULE OF CASH COLLECTIONS FROM SALE

A cash collection schedule shows the actual amount of cash received by a firm followed by a
predetermined structure. In this problem 9.1, budgeted sales are given at April, May and June, and
provided with a cash collection structure, which is:
20% of a month's sale are collected in the month of sale, 70% are collected in the month following
sale, and the remaining 10% are collected in the second month following sale.
for instance, in the problem, in the month of may the budgeted sales is $300,000. According to the
collection structure given in the problem, the schedule should be as follows:
April
(20% of sales collected in the
month of sales, so 20% of
$300,000)
= $60,000

May
June
(70% of sales are collected in (remaining 10% are collected in
the month following sale, so the second month following
70% of $300,000)
sale, so 10% of 300,000)
=$210,000
=$30,000

remembering the things above, lets solve 9.1

Notice that though the table starts from April, in the problem there are sales that occurred even before
April, Sales of $230,000 in February and in March sales of $260,000.
The schedule starts from May, but let's look what happens for the sales of February and March. As 20%
of sales is collected in the month of the sale and 70% in the following month and 10% collected in the
second month following,
20% of sales in February is already collected in February
70% of sales in February is already collected in March
10% of sales in February is to be collected in April
as the table starts from April, there is a remaining collection of 10% of February sales in The month of
April. Similarly, 20% of sales of March is already collected on march, the remaining 70% has to be
collected in the month of April and the last 10% on the month of May.
The solved problem is as follows:
9.1

sales in February
sales in march
sales in April
sales in may
sales in June

April
may
June
total
23000
23000
182000
26000
208000
60000 210000
30000 300000
100000 350000 450000
40000
40000
265000 336000 420000 1021000

The budgeted sales of April are totally covered in the following months, but however, 10% of sales in
may (which is to be collected in the month of July) is still remained uncollected plus a total of 80% of
sales in June is left uncollected (70% to be collected in July and 10% to be collected in August). THESE
UNCOLLECTED CASH PAYMENTS ARE TO BE INCLUDED AS ACCOUNTS RECIEVABLE, which is as follows:

On June 30, accounts receivables:

10% of sales in May (10% of $500,000)

50000

80% of sales in June (80% of $200,000)

160000

Total accounts receivables:

$210000

things to remember... Before starting to compute problems that involve cash collection schedules, we
should determine whether there are cash to be collected from previous months/quarters/years or any
timeline. The cash to be received later which are not added in the schedule, should be treated as
accounts receivables.

PRODUCTION BUDGET
A production budget follows the following format:
Budgeted sales
add: Desired Ending Inventory
Total needs

Less: beginning inventory of finished goods

required production

problem 9.2
The problem requires a production budget for the second quarter, which implies that we only prepare a
production budget for a quarter, so we only take from April to June to determine the quarter's budget.

April

Budgeted sales

50000

May

75000

June

90000

1st
quarter
215000

At the end of 3 months, in the first quarter, we add up the previous sales, from April to June
Then, according to the format, we plot the desired according inventory, which, according to the given
problem is "10% of the following months sales".
so here in this problem, the desired ending inventory of April will be 10% of the following months sales,
which is May, so 10% of $75000 IS $7500. similarly for May, the desired ending inventory would be 10%
of the sales happened in June, which is 10% of $90000=$9000. For June, 10% of July's sales which would
be 10% of $80000=$8000. lets look at the table:
April

Budgeted sales
add: Desired ending inventory of finished
goods

50000
7500

May

75000
9000

June

90000
8000

1st
quarter
215000
8000

If we look closely, we'll see that the desired ending inventory on the first quarter is not a sum up of the
previous desired inventories. because, the DESIRED ENDING INVENTORY OF A QUARTER IS THE LAST
MONTH'S ENDING INVENTORY, so, June's desired ending inventory is as well as the quarter's desired
inventory, we'll see in a moment.
Now lets add up budgeted sales :
April

Budgeted sales
add: Desired ending inventory of finished
goods
Total needs

May

June

1st
quarter

50000
7500

75000
9000

90000
8000

215000
8000

57500

84000

98000

223000

as the format, we have to deduct the beginning inventory. in the last point, it says that the beginning
inventory of a month is the ending inventory of the previous month, so, the beginning inventory of April
would be the ending inventory of March, the beginning inventory of May would be the ending inventory
of April, and Similarly the beginning inventory of June would be the ending inventory of May,
April

Budgeted sales
add: Desired ending inventory of finished
goods
Total needs
less: beginning inventory of finished goods

May

June

1st
quarter

50000
7500

75000
9000

90000
8000

215000
8000

57500
5000

84000
7500

98000
9000

223000
????

what would be the Beginning inventory of the quarter? obviously, the beginning inventory of the first
quarter would be the beginning inventory of the first month, which is April($5000 is the beginning
inventory of April, making it the beginning inventory of the quarter, as the computation for the quarter
starts from April.
April

Budgeted sales
add: Desired ending inventory of finished
goods
Total needs
less: beginning inventory of finished goods
required production

May

June

1st
quarter

50000
7500

75000
9000

90000
8000

215000
8000

57500
5000
52500

84000
7500
76500

98000
9000
89000

223000
5000
218000

Direct materials budget

The direct materials budget is usually accompanied by a schedule of cash disbursements (a lot similar to
the schedule of cash collection which represents inflows while schedule of cash disbursements
represent outflows) for raw materials or merchandise purchases.
The direct materials budget follows the following format:
Required production in (cases/bottles/packets etc)
(X) Raw materials needed per (case/bottle/packet
etc)
Production needs (in pounds/kg etc)
Add: desired ending inventory of materials
Total needs
Less: beginning inventory of raw materials
Raw materials to be purchased
cost of raw materials per (pound/kg etc)
Cost of raw materials to be purchased
ex 9.3
The budgeted production at different timeline are given, which is the required production in bottles in
this case.
year 2

Required production in
bottles

year 3

first
second
third
fourth
quarter
quarter
quarter
quarter
60000
90000
150000 100000

first
70000

then we multiply the required production in bottles and raw materials needed per bottle, and we find
the production needs in grams. In the problem, raw materials needed per bottle is 3 Roubles.
year 2

Required production in
bottles
(*) raw materials needed
per bottle
production needs in
grams

year 3

first
second
third
fourth
quarter
quarter
quarter
quarter
60000
90000
150000 100000

first
70000

180000

270000

450000

300000

210000

Now if we go back to the problem we'll see that it demands a direct materials budget by quarter and in
total for year 2. so, we'll start computing for the 4 quarters or the year 2 only.
year 2

production needs in grams

first
second
third
fourth
quarter
quarter
quarter
quarter
180000
270000
450000 300000

Year (4
quarters*3)
1200000

by adding desired ending inventory we can find total needs. the problem says that the inventory at the
end of a quarter must be equal to 20% of the following quarter's production quarter's production needs.
so, the desired ending inventory of the first quarter would be 20% of next quarter, similarly for all other
quarters. the desired ending inventory for year would be the ending inventory of the last quarter, which
is the fourth quarter.
year 2

production needs in grams

(+) desired ending
inventory of materials
total needs

first
second
third
fourth
quarter
quarter
quarter
quarter
180000
270000
450000 300000
54000
90000
60000
42000
234000

360000

510000

342000

Year (4
quarters*3)
1200000
42000
1242000

lets deduct beginning inventory from total needs to find out raw materials to be purchased.
according to the problem, some 36000 grams of musk oil will be on hand to start the first quarter of year
2. so the beginning inventory of first quarter would be 36000. we know that the beginning inventory of a
quarter is the ending inventory of the previous quarter. so beginning inventory of second quarter would
be the ending inventory of first quarter.
and the beginning inventory of year 2? the beginning inventory of the first quarter of the year is the
beginning inventory of the year.
year 2

production needs in grams

(+) deired ending inventory
of materials
total needs
(-) beginning inventory
raw materials to be
purchased

first
second
third
fourth
quarter
quarter
quarter
quarter
180000
270000
450000 300000
54000
90000
60000
42000
234000
36000
198000

360000
54000
306000

510000
90000
420000

342000
60000
282000

Year (4
quarters*3)
1200000
42000
1242000
36000
1206000

according to the problem, per Kilogram of musk oil is 150 roubles, which means that 0.15 roubles per
gram. so multiplying raw materials to be purchased in grams and cost of raw materials per gram we get
the cost of materials to be purchased.
year 2

production needs in grams

(+) desired ending inventory
of materials
total needs
(-) beginning inventory
raw materials to be
purchased
[cost of raw materials
0.15/gram]
cost of raw materials to be
purchased

first
second
third
fourth
quarter
quarter
quarter
quarter
180000
270000
450000
300000
54000
90000
60000
42000

Year (4
quarters*3)
1200000
42000

234000
36000
198000

360000
54000
306000

510000
90000
420000

342000
60000
282000

1242000
36000
1206000

29700

45900

63000

42300

180900

the problem doesn't demand a schedule of cash disbursements.

DIRECT LABOR BUDGET

very simple format..

required production in units

(*)direct labor hours
total direct labor hours
needed
(*)diret labor cost per hour
total direct labor cost

EX 9.4
direct labor budget for the first part (1):

required production in units

(*)direct labor hours
total direct labor hours needed
(*)direct labor cost per hour
total direct labor cost

first
8000
0.35
2800
12
33600

year 2
year
second
third
fourth
6500
7000
7500
29000
0.35
0.35
0.35
0.35
2275
2450
2625
10150
12
12
12
12
27300
29400
31500 121800

for the second part, we acquire new information, such as number of regular hours (2600) for which
regular wage was 12 and we also find out that for overtime hours, 1.5 times of the regular wage
(1.5*$12=$18) will be paid. performing the required calculation for the direct labor budget,

total direct labor hours needed

regular hours
overtime hours
regular wage ($12 per hour)
overtime wage (1.5*$12 per
hour=$18)
total direct labor cost

year 2
third
2450
2600

first
second
2800
2275
2600
2600
200 31200
31200
31200
3600 34800

31200

31200

Fourth
2625
2600
25
31200
450

124800
4050

31650

128850

MANUFACTURING OVERHEAD BUDGET

find variable manufacturing overhead

add variable manufacturing overhead and fixed manufacturing overhead to determine total
manufacturing overhead
deduct depreciation to figure out cash disbursements for manufacturng overhead.
finally compute predetermined overhead rate for the year

^^budgeted labor hours X variable manufacturing overhead rate= variable manufacturing overhead
^^overhead rate= total manufacturing overhead/budgeted direct labor hours
EX 9.5
1st
2nd
Quarter Quarter
Budgeted direct labor-hours
(X)Variable man. overhead rate
Variable manufacturing
overhead
(+)Fixed manufacturing
overhead
Total manufacturing overhead
(-) depreciation
Cash disbursements for man
overhead

8000
3.25
26000

8200
3.25
26650

4th
year
Quarter
Year
8500
7800
32500
3.25
3.25
3.25
27625
25350
105625

48000

48000

48000

48000

192000

74000
16000
58000

74650
16000
58650

75625
16000
59625

73350
16000
57350

297625
64000
233625

| overhead rate: $297625/32500= 9.158 |

3rd
Quarter

SELLING AND ADMINISTRATIVE EXPENSE BUDGET

EX 9.6

budgeted sales In units

variable s&A expense per unit
variable s&A expense
fixed s&A expense:
advertising
executive salaries
insurance
property taxes
depreciation
total fixed s&A expense
total s&A expense
(-) depreciation
cash disbrsements for s&A
expenses
EX 9.7

1st
2nd
3rd
4th
Year
Quarter Quarter Quarter Quarter
15000
16000
14000
13000
58000
2.5
2.5
2.5
2.5
2.5
37500
40000
35000
32500 145000
8000
35,000
5000
20000
68000
105500
20000
85500

8000
35,000
8000
20000
71000
111000
20000
91000

8000
35,000
5000

8000
35,000

20000
68000
103000
20000
83000

20000
63000
95500
20000
75500

32000
140,000
10000
8000
80000
270000
415000
80000
335000