Question

Freese, Inc., is in the process of preparing the fourth quarter budget for 2016, and the following data have been assembled:

The company sells a single product at a price of $61 per unit. The estimated sales volume for the next six months is as follows:

September	7,800	units
October	7,200	units
November	8,400	units
December	12,000	units
January	5,400	units
February	6,000	units

All sales are on account. The company's collection experience has been that 30% of a month's sales are collected in the month of sale, 68% are collected in the month following the sale, and 2% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e., accounts receivable less allowance for uncollectible accounts) will be $323,544 on September 30, 2016.

Management's policy is to maintain ending finished goods inventory each month at a level equal to 30% of the next month's budgeted sales. The finished goods inventory on September 30, 2016, is expected to be 2,160 units.

To make one unit of finished product, 4 pounds of materials are required. Management's policy is to have enough materials on hand at the end of each month to equal 40% of the next month's estimated usage. The raw materials inventory is expected to be 12,096 pounds on September 30, 2016.

The cost per pound of raw material is $7, and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable for raw material purchases is expected to be $63,806 on September 30, 2016.

Required:
a. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (October, November, and December) of 2016.

b. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2016.

c. Prepare a production budget in units, by month and in total, for the fourth quarter of 2016.

d. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2016.

e. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2016. (Do not round intermediate calculations.)

Answer 1

a.

FREESE, INC.
Sales Budget
For the Quarter 4 of 2016
	October	November	December	Total
Budgeted sales in units	7200	8400	12000	27600
Unit selling price $	$61	$61	$61	$61
Total Sales $	439200	512400	732000	1683600

b.

FREESE, INC.
Schedule of Cash Collections
For the Quarter 4 of 2016
	October	November	December	Total
Sales $	439200	512400	732000	1683600
Collection of credit sales of:
Current month's sales (30%)	131760	153720	219600	505080
Previous month's sales (68%)	323544	298656	348432	970632
Total cash collections $	455304	452376	568032	1475712

c.

FREESE, INC.
Production Budget
For the Quarter 4 of 2016
	October	November	December	Total	January	February
Budgeted sales in units	7200	8400	12000	27600	5400	6000
Desired ending FG inventory as percent of next month's budgeted sales (units)	30%	30%	30%		30%
Budgeted ending inventory (units)	2520	3600	1620	1620	1800
Required production (units)	9720	12000	13620	29220	7200
Less: Beginning inventory (units)	2160	2520	3600	2160	1620
Budgeted production in units	7560	9480	10020	27060	5580

d.

FREESE, INC.
Materials Purchases Budget
For the Quarter 4 of 2016
	October	November	December	Total	January
Budgeted production (units)	7560	9480	10020	27060	5580
Material required per unit (pounds)	4	4	4	4	4
Total material required for production (pounds)	30240	37920	40080	108240	22320
Desired ending materials inventory as percent of next month's usage	40%	40%	40%
Budgeted ending materials inventory (pounds)	15168	16032	8928	8928
Total materials required (pounds)	45408	53952	49008	117168
Less: Beginning materials inventory (pounds)	12096	15168	16032	12096
Materials to be purchased (pounds)	33312	38784	32976	105072
Material price per pound $	$7.00	$7.00	$7.00	$7.00
Total budgeted material purchases $	233184	271488	230832	735504

e.

FREESE, INC.
Schedule of Cash Payments for Materials
For the Quarter 4 of 2016
	October	November	December	Total
Budgeted material purchases $	233184	271488	230832	735504
Cash payments for:
Previous month's purchases (30%)	63806	69955	81446	215208
Current month's purchases (70%)	163229	190042	161582	514853
Total cash payments for material purchases $	227035	259997	243029	730060