Reference no: EM132791353

The University of Wisconsin and its subunits must prepare budgets. One unique subunit of the University of Wisconsin is Babcock Ice Cream, a functioning producer of dairy products (and famous, at least on campus, for its delicious ice cream).

Assume that Babcock Ice Cream prepares monthly cash budgets. Relevant data from assumed operating budgets for 2012 are:

                                  January                       February

Sales                       $460,000                $412,000
Direct materials          185,000                 210,000
purchases
Direct labor               70,000                  85,000
Manufacturing              50,000                65,000
overhead
Selling and                    85,000                    95,000
administrative expenses

Babcock sells its ice cream in shops on campus, as well as to local stores. Collections are expected to be 75% in the month of sale, and 25% in the month following sale. Babcock pays 60% of direct materials purchases in cash in the month of purchase, and the balance due in the month following the purchase. All other items above are paid in the month incurred. (Depreciation has been excluded from manufacturing overhead and selling and administrative expenses.)

Other data:

(1) Sales: December 2011, $320,000
(2) Purchases of direct materials: December 2011, $175,000
(3) Other receipts: January-Donation received, $2,000 February-Sale of used equipment, $4,000
(4) Other disbursements: February-Purchased equipment, $10,000
(5) Repaid debt: January, $30,000

• The company's cash balance on January 1, 2012, is expected to be $50,000. The company wants to maintain a minimum cash balance of $45,000.

Instructions

problem (a) Prepare schedules for (1) expected collections from customers and (2) expected payments for direct materials purchases.

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