The prince Albert Corporation has forecasted the following sales for the first seven months
Jan $10,000
Feb 12,000
Mar 14,000
April 20,000
May 10,000
June 16,000
July 18,000
Monthly material purchase are set to 30 % of forecasted sales for the next month. Of the total material costs, 40 % are paid in the month of purchase and 60 % are paid in the following month. Labor costs will run $4,000 per month and fixed overhead is $2,000 per month. interest payments on the debt will be $3,000 for both March and June. Finally,the Prince Albert salespeople will receive a 1.5 % comission on total sales for the first six months of the eyar to be paid on june 30.
Prepare a monthly summary of cash payments for the six months from jan through june (compute prior december purchases to help get material paymnets for january)
To prepare a monthly summary of cash payments for the six months from January through June, we need to calculate the cash payments for each month based on the given information.
First, let's calculate the material purchases for each month. The monthly material purchases are set to 30% of the forecasted sales for the next month.
For example, the material purchases for February will be 30% of the forecasted sales for March, which is 14,000. So, the material purchases for February will be 0.3 * 14,000 = $4,200.
Similarly, we can calculate the material purchases for each month as follows:
January: 0.3 * 10,000 = $3,000 (Purchases made in December)
February: 0.3 * 14,000 = $4,200
March: 0.3 * 20,000 = $6,000
April: 0.3 * 10,000 = $3,000
May: 0.3 * 16,000 = $4,800
June: 0.3 * 18,000 = $5,400
Next, we need to calculate the cash payments for material costs. Of the total material costs, 40% is paid in the month of purchase, and 60% is paid in the following month.
Let's calculate the material payments for each month:
January: 40% of January purchases = 0.4 * $3,000 = $1,200
February: 40% of February purchases = 0.4 * $4,200 = $1,680
March: 40% of March purchases = 0.4 * $6,000 = $2,400
April: 60% of January purchases = 0.6 * $3,000 = $1,800
May: 60% of February purchases = 0.6 * $4,200 = $2,520
June: 60% of March purchases = 0.6 * $6,000 = $3,600
Now let's calculate the other cash payments:
Labor costs: $4,000 per month, so the payment will be $4,000 for each month from January to June.
Fixed overhead: $2,000 per month, so the payment will be $2,000 for each month from January to June.
Interest payments: $3,000 for both March and June.
Commission payments to salespeople: 1.5% of total sales for the first six months, to be paid on June 30. Since we don't have the sales figures for July, we'll assume that the sales amount remains the same as June ($18,000).
Commission payment = 1.5% of (sum of Jan to June sales) = 0.015 * ($10,000 + $12,000 + $14,000 + $20,000 + $10,000 + $16,000) = $1,680
Now, let's summarize the monthly cash payments:
January: $3,000 (material) + $4,000 (labor) + $2,000 (overhead) = $9,000
February: $1,200 (material) + $4,000 (labor) + $2,000 (overhead) = $7,200
March: $2,400 (material) + $4,000 (labor) + $2,000 (overhead) + $3,000 (interest) = $11,400
April: $1,800 (material) + $4,000 (labor) + $2,000 (overhead) = $7,800
May: $2,520 (material) + $4,000 (labor) + $2,000 (overhead) = $8,520
June: $3,600 (material) + $4,000 (labor) + $2,000 (overhead) + $3,000 (interest) + $1,680 (commission) = $14,280
This summarizes the monthly cash payments for the first six months from January through June.