Question

Sales, production purchases, and cash budgets Freese, Inc., is in the process of preparing the fourth quarter budget for 2013, and the following data have been assembled:

• The company sells a single product at a price of $60 per unit. The estimated sales volume for the next six months is as follows:

Problem 14.24 LO 4, 5, 8

September. ..................................13,000 units

October. ..................................12,000 units

November. ..................................14,000 units

December. ..................................20,000 units

January. ..................................9,000 units

February. ..................................10,000 uhits

All sales are on account. The company’s collection experience has been
that 32% of a month’s sales are collected in the month of sale, 64% are collected in the month following the sale, and 4% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e., accounts receivable less allow- ance for uncollectible accounts) will be $499,200 on September 30, 2013.

Management’s policy is to maintain ending finished goods inventory each month at a level equal to 40% of the next month’s budgeted sales. The fin- ished goods inventory on September 30, 2013, is expected to be 4,800 units.

To make one unit of finished product, 5 pounds of materials are required. Management’s policy is to have enough materials on hand at the end of each month to equal 30% of the next month’s estimated usage. The raw materials inventory is expected to be 19,200 pounds on September 30, 2013.

The cost per pound of raw material is $4, 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 $75,960 on September 30, 2013.

Required:

1. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (October, November, and December) of 2013.

2. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2013.

3. Prepare a production budget in units, by month and in total, for the fourth quarter of 2013.

4. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2013.

5. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2013.

Answer 1