Question

Delma Leathers Company is a manufacturer and seller of sports shoes. Information on budgeted sales in units is given below. Use this information to answer all parts of question one.

              Month                                        Units

February 2018                                    20,000

March 2018                                         24,000

April 2018                                           60,000

May 2018                                            45,000

June 2018                                            35,000

July 2018                                             30,000

Aug 2018                                            50,000                                  

Required:

The selling price per unit is AED 35.

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

Month of sale	70%
Month following sale	30%

The company maintains finished goods inventories equal to 20% of the following month's sales. The ending inventory on 31^st March was 12,000 units.

Each shoes requires 6 pounds of raw materials.

The company requires that the ending inventory of raw materials be equal to 20% of the following month's production needs. The beginning inventory of materials on April 1^st was 85,500 units

The raw materials costs $1.70 per pound.

60% of a month's purchases of raw materials is paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable balance at the end of March was AED 325,000 to be paid in full in April.

Required:

Prepare a sales budget, by month and in total, for the second quarter. (Show your budget in both units and dollars.)

Prepare a schedule of expected cash collections, by month and in total, for the second quarter.   

Prepare a production budget for each of the months of April-July.

Prepare a direct materials budget, by month and in total, for the second quarter.

Prepare a schedule of expected cash disbursements, by month and in total, for the second quarter.                          

Answer 1

1. Sales budget
Month	April		May		June		Total
Particulrs	Units	Dollars	Units	Dollars	Units	Dollars	Dollars	Dollars
Selling Price AED 35	60,000	21,00,000	45,000	15,75,000	35,000	12,25,000	1,40,000	49,00,000
		(60,000*35)		(45,000*35)		(35,000*35)
2. Schedule of expected cash collections, by month and in total, for the second quarter
As given in question, 70% of credit sales are collected in the month of sale and 30% in following month
And all sales are on credit.
				(AED)
Particulars	April	May	June	Total
March Sales (30% of 24,000)	7,200			7,200
April Sales (70% of 60,000)	42,000			42,000
April Sales (30% of 60,000)		18,000		18,000
May Sales (70% of 45,000)		31,500		31,500
May Sales(30% of 45,000)			13,500	13,500
June Sales (70% of 35,000)			24,500	24,500
	49,200	49,500	38,000	1,36,700
3.Production budget for each of the months of April-July
The company maintains finished goods inventories equal to 20% of the following month's sales.
So, Closing finished goods should be -
			Units
Mach (as per question)			12000
April (Sales of May * 20 %)	(45000*20%)		9000
May (Sales of June * 20 %)	(35000*20%)		7000
June (Sales of July * 20 %)	(30000*20%)		6000
July (Sales of August * 20 %)	(50000*20%)		10000
Production Budget
	April	May	June	July
Desired closing Stock	9,000	7,000	6,000	10,000
Sales	60,000	45,000	35,000	30,000
Less : Opening Stock	12,000	9,000	7,000	6,000
Production (Units)	57,000	43,000	34,000	34,000
4. Direct materials budget, by month and in total, for the second quarter
Each shoes requires 6 pounds of raw materials.
The company requires that the ending inventory of raw materials be equal to 20% of the following month's production needs. The beginning inventory of materials on April 1st was 85,500 units
The raw materials costs $1.70 per pound.
Closing stock of Raw materials should be -
					Units of raw marerials
March					85500
April (20% of May Production * 6 pounds)		(20% of 43,000 * 6 )			51600
May (20% of June Production * 6 pounds)		(20% of 34,000 * 6 )			40800
June (20% of July Production * 6 pounds)		(20% of 34,000 * 6 )			40800
Direct Material budget
	April	May	June	Total
Desired closing Stock	51,600	40,800	40,800	40,800
Consumption	3,42,000	2,58,000	2,04,000	8,04,000
Less : Opening Stock	85,500	51,600	40,800	85,500
Purchase (Units) (A)	3,08,100	2,47,200	2,04,000	7,59,300
Cost/unit (B)	$ 1.7	$ 1.7	$ 1.7	$ 1.7
Total Costs $ (A*B)	5,23,770	4,20,240	3,46,800	12,90,810
5. Schedule of expected cash disbursements, by month and in total, for the second quarter.
60% of a month's purchases of raw materials is paid for in the month of purchase;
the remainder is paid for in the following month. The accounts payable balance at the end of March was AED 325,000 to be paid in full in April.
	April	May	June	Total
Opening accounts payable	3,25,000			3,25,000
April Purchase (60% of 5,23,770)	3,14,262			3,14,262
April Purchase (40% of 5,23,770)		2,09,508		2,09,508
May Purchase (60% of 4,20,240)		2,52,144		2,52,144
May Purchase (40% of 4,20,240)			1,68,096	1,68,096
June Purchase (60% of 3,46,800)			2,08,080	2,08,080
	6,39,262	4,61,652	3,76,176	14,77,090