Hagen Company’s budgeted sales and direct materials purchases are as follows. Budgeted SalesBudgeted D. M. Purchases
January $300,000$60,000
February 330,00070,000
March 350,00080,000
Hagen’s sales are 40% cash and 60% credit. Credit sales are collected 10% in the month of sale, 50% in the month following sale, and 36% in the second month following sale; 4% are uncollectible. Hagen’s purchases are 50% cash and 50% on account. Purchases on account are paid 40% in the month of purchase, and 60% in the month following purchase.
Instructions
(a) Prepare a schedule of expected collections from customers for March.
(b) Prepare a schedule of expected payments for direct materials for March.

Results are below.

Explanation:

Giving the following information:

Budgeted Sales - Budgeted D.M. Purchases

January= $300,000 - $60,000

February= $330,000 - $70,000

March= $350,000 - $80,000

Hagen’s sales are 40% cash and 60% credit. Credit sales are collected 10% in the month of sale, 50% in the month following sale, and 36% in the second month following sale; 4% are uncollectible.

Hagen’s purchases are 50% cash and 50% on account. Purchases on account are paid 40% in the month of purchase, and 60% in the month following purchase.

A) We need to determine the cash collections from sales for March:

Cash collection:

Sales in cash= 350,000*0.4= 140,000

Sales on account From March= (350,000*0.6)*0.1= 21,000

Sales on account From February= (330,000*0.6)*0.5= 99,000

Sales on account From January= (300,000*0.6)*0.36= 64,800

Total cash= $324,800

B) We need to determine the cash payments in March:

Cash payment:

Purchase in cash= 80,000*0.5= 40,000

Purchase on account from March= (80,000*0.5)*0.4= 16,000

Purchase on account from February= (70,000*0.5)*0.6= 21,000

Total cash payment= $77,000