Question

Capp Corporation is a wholesaler of industrial goods. Data regarding operations follow: (not all of the information will be used)

Data for Sales and Cash Collections:

• Sales are budgeted at 3,300 for October, 3,500 for November, 3,600 for December, 3,400 for January, and 3,500 for February. The average selling price is $100 per unit.
• Collections are expected to be 60% in the month of sale, 39% in the month following the sale, and 1% uncollectible.
• The October beginning balance in the accounts receivable account is $120,000. All of it will be collected in October.

Additional Data for Merchandise Production:

(Note use the sales information above and the following data).

• The company desires an ending merchandise inventory equal to 30% of the following month's production.
• The beginning merchandise balance is 1,000 units.

Additional Data for Direct Material Purchases:

(Note use the sales information above and the following data).

• It takes 5 items per each finished unit. Each item of raw materials average cost is $10.
• The company desires an ending materials inventory equal to 20% of the following month's materials needed for production.
• The beginning materials balance is 3,300 items.
• Additional Data for Expected Cash Payments:
• 25% of the merchandise is paid in the month of purchase, with the remaining 75% paid in the month following the purchase.
• The October beginning balance in the accounts payable account is $125,000. All of it will be paid in October.

Required:
a. Prepare the Production Budget for October and November.

b. Prepare a Direct Materials Budget for October and November.

Answer 1

a)	Production Budget
	Particulars			October	November	December	January
	Budgeted sales in units			3300	3500	3600	3400
Add:	Desired ending F.G inventory			1050	1080	1020
	Total F.G inventory required			4350	4580	4620
Less:	Beginning F.G inventory			1000	1050	1080
	Production required			3350	3530	3540

b)	Direct Materials Budget
	Particulars			October	November	December
	Production required			3350	3530	3540
	R.M unit required per F.G unit			5	5	5
	Total R.M units required			16750	17650	17700
Add:	Desired ending R.M inventory			3530	3540
	Total R.M inventory required			20280	21190
Less:	Beginning R.M inventory			3300	3530
	R.M purchase required in units			16980	17660
	R.M cost per unit			$            10.00	$            10.00
	Total R.M purchase cost			$ 1,69,800.00	$ 1,76,600.00