Question

1.

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

	April	May	June	Total
Budgeted sales (all on account)	$480,000	$680,000	$260,000	$1,420,000

From past experience, the company has learned that 30% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $410,000, and March sales totaled $440,000.

Required:

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

2. What is the accounts receivable balance on June 30th?

2.

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company’s products. The company now is planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements:

The finished goods inventory on hand at the end of each month must equal 3,000 units of Supermix plus 25% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 19,250 units.

The raw materials inventory on hand at the end of each month must equal one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 99,375 cc of solvent H300.

The company maintains no work in process inventories.

A monthly sales budget for Supermix for the third and fourth quarters of the year follows.

	Budgeted Unit Sales
July	65,000
August	70,000
September	80,000
October	60,000
November	50,000
December	40,000

Required:

1. Prepare a production budget for Supermix for the months July, August, September, and October.

3. Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August, and September, and for the quarter in total.

Answer 1

	1.1 EXPECTED CASH COLLECTION
		Feb	March	April	May	June	TOTAL
	Sales	$      4,10,000	$     4,40,000	$ 4,80,000	$ 6,80,000	$ 2,60,000
	April Collection	$         41,000	$     2,64,000	$ 1,44,000	$              -	$              -	$ 4,49,000
	May Collection		$         44,000	$ 2,88,000	$ 2,04,000	$              -	$ 5,36,000
	June Collection		$                  -	$     48,000	$ 4,08,000	$     78,000	$ 5,34,000
	1.2 Balance of Accounts Receivable on June 30
	May Sales Receivables	=10% of Sales		$     68,000
	June Sales Receivables	=70% of Sales		$ 1,82,000
	TOTAL RECEIVABLES ON JUNE 30			$ 2,50,000
	2.1 PRODUCTION BUDGET FOR SUPERMIX
	PRODUCTION OF FINISHED GOODS
		July	August	September	October	November
	Budgeted Sales	65000	70000	80000	60000	50000
	Add: Ending Inventory(3000+25% of Following Month Sales)	20500	23000	18000	15500	-
	Less: Opening Inventory	19250	20500	23000	18000	-
	Total Production	66250	72500	75000	57500	-
	2.3 DIRECT MATERIALS PURCHASE BUDGET
		July	August	September	October	Total 2nd Quarter
	Total Production	66250	72500	75000	57500
	Raw Materials Requirement	198750	217500	225000	172500
	Add: Closing Inventory( One half of Following Month's Requirement)	108750	112500	86250	-
	Less: Opening Inventory	99375	108750	112500	-
	Total Purchases	208125	221250	198750	-	628125