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 $13 per pair.

July	5,600	October	3,600
August	6,600	November	2,600
September	4,600	December	2,600

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 $130,000.

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 504 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 4,552 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 $11,800 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

Required Budgets are as prepared below:

1a. Sales Budget
Swanson Inc
Sales Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Sale Units (a)	5,600	6,600	4,600	16,800
*Price per unit (b)	$13.0	$13.0	$13.0	$13.0
Total Sales	$72,800	$85,800	$59,800	218,400
1b.
Swanson Inc
Schedule of expected Cash collections
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Beginning Accounts Receivable (a)	130,000			130,000
Collected in same month (43%)	31,304	36,894	25,714	93,912
Collected in following month (48%)		34,944	41,184	76,128
Total collections	161,304	71,838	66,898	300,040
2. Production Budget
Swanson Inc
Production Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total	October	November
Sale Units (a)	5,600	6,600	4,600	16,800	3,600	2,600
Planned ending units (b) (9% of following month sales)	594	414	324	324	234
Beginning units (c )	504	594	414	504	324
Planned production units (d)= (a+b-c)	5,690	6,420	4,510	16,620	3,510
3a.
Swanson Inc
Raw Material Purchase Budget
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Planned production units (a)	5,690	6,420	4,510	16,620	3,510
*Direct Material required per unit (b)	4.0	4.0	4.0	4.0	4.0
Direct Material Required for production (c )	22,760	25,680	18,040	66,480	14,040
Budgeted ending Direct Material (d)	5,136	3,608	2,808	2,808
Beginning Direct Material (e )	4,552	5,136	3,608	4,552
Budgeted direct material purchase f= c+d-e	23,344	24,152	17,240	64,736
Cost per unit (g)	$2.5	$2.5	$2.5	$2.5
BudgetedDM purchases	$58,360	$60,380	$43,100	161,840
3b.
Swanson Inc
Schedule of expected Cash payments
For the quarter ended September 30
	Month
Particulars	July	August	September	Total
Beginning Accounts Payable (a)	$11,800			$11,800
Paid in same month (60%)	$35,016	$36,228	$25,860	$97,104
Paid in following month (40%)		$23,344	$24,152	$47,496
Total payments (a+b+c+d)	$46,816	$59,572	$50,012	$156,400