Question

Galaxy Lighting Company manufactures and sells lighting fixtures. Estimated sales for the next three months are:

September	$ 350,000
October	$ 500,000
November	$ 400,000

Sales for August were $400,000 and December is estimated as $420,000. All sales are on account. Galaxy Lighting Company estimates that 80% of the accounts receivable are collected in the month of sale with the remaining 20% collected the following month. The units sell for $40 each.

Generally, 60% of purchases are due and payable in the month of purchase with the remainder due the following month. Purchase cost per unit for materials is $18. The company maintains an end-of-the-month inventory of 1,000 units plus 10% of next month’s unit sales. August’s ending inventory is estimated at 1,875 units and November’s ending inventory is estimated as 2,500 units. The accounts payable balance on August 31 is expected to be $13,500 and should be paid in September.

A) Prepare a sales budget in dollars and units for September, October, and November.

B) Prepare a schedule of cash receipts from customers.

C) Prepare a purchases budget for September, October and November.

D) Prepare a schedule of cash payments for purchases.

Answer 1

Solution A:

Galaxy lighting Company
Sales Budget
Particulars	September	October	November
Estimated Sales	$350,000.00	$500,000.00	$400,000.00
Unit Price	$40.00	$40.00	$40.00
Estimated Sales units	8750	12500	10000

Solution B:

Galaxy lighting Company
Schedule of expected cash receipts from customers
Particulars	September	October	November
Cash Colloection from Accounts receivable: (80% same month, 20% next month)
From sales of August	$80,000.00
From sales of September	$280,000.00	$70,000.00
From sales of October		$400,000.00	$100,000.00
From sales of November			$320,000.00
Total cash collections	$360,000.00	$470,000.00	$420,000.00

Solution C:

Galaxy lighting Company
Purchase Budget
Particulars	September	October	November
Budgeted sales units	8750	12500	10000
Desired Ending Inventory (1000 +10% of next month sale)	2250	2000	2500
Total Needed	11000	14500	12500
Less: Beginning Inventory	1875	2250	2000
Units Purchased	9125	12250	10500
Purchase price per unit	$18.00	$18.00	$18.00
Total Purchases in dollars	$164,250.00	$220,500.00	$189,000.00

Solution D:

Galaxy lighting Company
Schedule of Cash Payment for Purchases
Particulars	September	October	November
Cash payments:
Payment for August Accounts Payable	$13,500.00
For Purchases of September Purchases	$98,550.00	$65,700.00
For Purchases of October Purchases		$132,300.00	$88,200.00
For Purchases of November Purchases			$113,400.00
Total Payment for Purchases	$112,050.00	$198,000.00	$201,600.00