Question

Swanson, Inc., manufactures an advanced swim fin for scuba divers. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist in preparing the budget:

a. The Marketing Department has estimated sales as follows for the remainder of the year (in pairs of swim fins). The selling price of the swim fins is $21 per pair.

July 6,400 October 4,400  

August 7,400 November 3,400  

September 5,400 December 3,400  

b. All sales are on account. Based on past experience, sales are expected to be collected in the following pattern:

43% in the month of sale

48% in the month following sale

9% uncollectible

The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will be $154,000.

c.

The company maintains finished goods inventories equal to 9% of the following month’s sales. The inventory of finished goods on July 1 will be 576 pairs.

d.

Each pair of swim fins requires 4 pounds of geico compound. To prevent shortages, the company would like the inventory of geico compound on hand at the end of each month to be equal to 20% of the following month’s production needs. The inventory of geico compound on hand on July 1 will be 5,192 pounds.

e.

Geico compound costs $2.50 per pound. Crydon pays for 60% of its purchases in the month of purchase; the remainder is paid for in the following month. The accounts payable balance for geico compound purchases will be $13,400 on July 1.

Required:

1a.

Prepare a sales budget, by month and in total, for the third quarter.

1b.

Prepare a schedule of expected cash collections, by month and in total, for the third quarter. (Do not round intermediate calculations.)

  

2. Prepare a production budget for each of the months July through October.

3a.

Prepare a direct materials budget for geico compound, by month and in total, for the third quarter. (Do not round intermediate calculations.)

3b.

Prepare a schedule of expected cash disbursements for geico compound, by month and in total, for the third quarter. (Do not round intermediate calculations.)

  

Answer 1

Answer :

1a. SALES BUDGET FOR THE THIRD QUARTER
MONTH	UNITS	AMOUNT
JULY	6400	$ 134,400.00
AUGUST	7400	$ 155,400.00
SEPTEMBER	5400	$ 113,400.00
TOTAL	19200	$ 403,200.00

1b. SCHEDULE OF EXPECTED CASH COLLECTIONS FOR THE THIRD QUARTER
	JULY	AUGUST	SEPTEMBER	QUARTER
OPENING	$ 154,000.00	$                   -	$                   -	$ 154,000.00
JULY SALES	$    57,792.00	$    64,512.00	$                   -	$ 122,304.00
AUGUST SALES	$                   -	$    66,822.00	$    74,592.00	$ 141,414.00
SEPTEMBER SALES	$                   -	$                   -	$    48,762.00	$    48,762.00
TOTAL	$ 211,792.00	$ 131,334.00	$ 123,354.00	$ 466,480.00

2. PRODUCTION BUDGET
	JULY	AUGUST	SEPTEMBER	OCTOBER
BUDGETED SALES	6400	7400	5400	4400
ADD: DESIRED ENDING INVENTORY OF SWIM FIN	666	486	396	306
TOTAL NEEDS	7066	7886	5796	4706
LESS: BEGINNING INVENTORY OF SWIM FIN	576	666	486	396
REQUIRED PRODUCTION	6490	7220	5310	4310

3a. DIRECT MATERIALS BUDGET
	JULY	AUGUST	SEPTEMBER	QUARTER
BUDGETED PRODUCTION	6490	7220	5310	19020
MATERIALS REQUIRED FOR PRODUCTION	25960	28880	21240	76080
ADD: DESIRED ENDING INVENTORY OF GEICO COMPOUND	5776	4248	3448	13472
LESS: BEGINNING INVENTORY OF GIECO COMPOUND	5192	5776	4248	15216
MATERIALS UNITS TO BE PURCHASED	26544	27352	20440	74336
COST OF PURCHASE	$    66,360.00	$    68,380.00	$    51,100.00	$ 185,840.00

3b. SCHEDULE OF EXPECTED CASH DISBURSEMENTS FOR THE THIRD QUARTER
	JULY	AUGUST	SEPTEMBER	QUARTER
OPENING	$    13,400.00	$                   -	$                   -	$    13,400.00
JULY PURCHASE	$    39,816.00	$    26,544.00	0	$    66,360.00
AUGUST PURCHASE	$                   -	$    41,028.00	$    27,352.00	$    68,380.00
SEPTEMBER PURCHASE	$                   -	$                   -	$    30,660.00	$    30,660.00
TOTAL	$    53,216.00	$    67,572.00	$    58,012.00	$ 178,800.00