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P9-4B Derby Company

Price: $2.50

Derby Company prepares monthly cash budgets. Relevant data from operating
budgets for 2014 are:

   January  February 
Sales   350,000  400,000
Direct materials purchases   110,000  120,000
Direct labor   85,000  115,000
Manufacturing overhead   60,000  75,000
Selling and administrative expenses   75,000  80,000

All sales are on account. Collections are expected to be 60% in the month of sale, 25% in
the first month following the sale, and 15% in the second month following the sale. Thirty
percent (30%) of direct materials purchases are paid in cash in the month of purchase,
and the balance due is paid 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. Credit sales: November 2013, $200,000; December 2013, $290,000.
2. Purchases of direct materials: December 2013, $90,000.
3. Other receipts: January—collection of December 31, 2013, interest receivable $3,000;
February—proceeds from sale of securities $5,000.
4. Other disbursements: February—payment of $20,000 for land.
The company’s cash balance on January 1, 2014, is expected to be $50,000. The company
wants to maintain a minimum cash balance of $40,000.

(a) Prepare schedules for (1) expected collections from customers and (2) expected payments
for direct materials purchases.
(b) Prepare a cash budget for January and February in columnar form.

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