Joan Jett Ltd needs a cash budget for the month of April. The company's financial officer has provided you with the following information and assumptions:
a. The 1 April cash balance is expected to be $14,560.
b. All sales are on account. Credit sales are collected over a three-month period - 60 per cent in the month of sale, 30 per cent in the month following sale, and 10 per cent in the second month following sale. Actual sales for February and March were $60,000 and $55,000, respectively. April's sales are budgeted at $70,000.
c. Marketable securities are expected to be sold for $38,000 during the month of April.
d. The controller estimates that direct materials totalling $53,000 will be purchased during April. Fifty per cent of a month's raw materials purchases are paid in the month of purchase with the remaining 50 per cent paid in the following month. Accounts payable for March purchases total $16,150, which will be paid in April.
e. During April, direct labour costs are estimated to be $28,000.
f. Manufacturing overhead is estimated to be 50 per cent of direct labour costs, Further, the controller estimates that approximately 10 per cent of the manufacturing overhead is depreciation on the factory building and equipment.
g. Selling and administrative expenses are budgeted at $34,000 for April. Of this amount, $16,000 is for depreciation.
h. During April, Joan Jett Ltd plans to buy a new delivery van costing $17,500. The company will pay cash for the van.
i. Joan Jett Ltd owes $9,000 in income tax, which must be paid in April.
j. Joan Jett Ltd must maintain a minimum cash balance of $10,000. To bolster the cash position as needed, an open line of credit is available from the bank.
Instructions: Prepare the following:
(1) a schedule of cash collections
(2) a schedule of cash payments for raw materials
(3) a cash budget for the month of April. Indicate in the financing section any borrowing that will be necessary during the month.

Question

Joan Jett Ltd needs a cash budget for the month of April. The company's financial officer has provided you with the following information and assumptions:
a. The 1 April cash balance is expected to be $14,560.
b. All sales are on account. Credit sales are collected over a three-month period - 60 per cent in the month of sale, 30 per cent in the month following sale, and 10 per cent in the second month following sale. Actual sales for February and March were $60,000 and $55,000, respectively. April's sales are budgeted at $70,000.
c. Marketable securities are expected to be sold for $38,000 during the month of April.
d. The controller estimates that direct materials totalling $53,000 will be purchased during April. Fifty per cent of a month's raw materials purchases are paid in the month of purchase with the remaining 50 per cent paid in the following month. Accounts payable for March purchases total $16,150, which will be paid in April.
e. During April, direct labour costs are estimated to be $28,000.
f. Manufacturing overhead is estimated to be 50 per cent of direct labour costs, Further, the controller estimates that approximately 10 per cent of the manufacturing overhead is depreciation on the factory building and equipment.
g. Selling and administrative expenses are budgeted at $34,000 for April. Of this amount, $16,000 is for depreciation.
h. During April, Joan Jett Ltd plans to buy a new delivery van costing $17,500. The company will pay cash for the van.
i. Joan Jett Ltd owes $9,000 in income tax, which must be paid in April.
j. Joan Jett Ltd must maintain a minimum cash balance of $10,000. To bolster the cash position as needed, an open line of credit is available from the bank.
Instructions: Prepare the following: 
(1) a schedule of cash collections
(2) a schedule of cash payments for raw materials
(3) a cash budget for the month of April. Indicate in the financing section any borrowing that will be necessary during the month.

Quizplus · Accepted Answer

The Answer of Joan Jett Ltd needs a cash budget for the month of April. The company's financial officer has provided you with the following information and assumptions:
a. The 1 April cash balance is expected to be $14,560.
b. All sales are on account. Credit sales are collected over a three-month period - 60 per cent in the month of sale, 30 per cent in the month following sale, and 10 per cent in the second month following sale. Actual sales for February and March were $60,000 and $55,000, respectively. April's sales are budgeted at $70,000.
c. Marketable securities are expected to be sold for $38,000 during the month of April.
d. The controller estimates that direct materials totalling $53,000 will be purchased during April. Fifty per cent of a month's raw materials purchases are paid in the month of purchase with the remaining 50 per cent paid in the following month. Accounts payable for March purchases total $16,150, which will be paid in April.
e. During April, direct labour costs are estimated to be $28,000.
f. Manufacturing overhead is estimated to be 50 per cent of direct labour costs, Further, the controller estimates that approximately 10 per cent of the manufacturing overhead is depreciation on the factory building and equipment.
g. Selling and administrative expenses are budgeted at $34,000 for April. Of this amount, $16,000 is for depreciation.
h. During April, Joan Jett Ltd plans to buy a new delivery van costing $17,500. The company will pay cash for the van.
i. Joan Jett Ltd owes $9,000 in income tax, which must be paid in April.
j. Joan Jett Ltd must maintain a minimum cash balance of $10,000. To bolster the cash position as needed, an open line of credit is available from the bank.
Instructions: Prepare the following: 
(1) a schedule of cash collections
(2) a schedule of cash payments for raw materials
(3) a cash budget for the month of April. Indicate in the financing section any borrowing that will be necessary during the month.

Joan Jett Ltd Needs a Cash Budget for the Month