Question

Swanson, Inc., manufactures an advanced swim fin for scuba divers. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist in preparing the budget:

a.	The Marketing Department has estimated sales as follows for the remainder of the year (in pairs of swim fins). The selling price of the swim fins is $17 per pair.

July	6,000	October	4,000
August	7,000	November	3,000
September	5,000	December	3,000

b.	All sales are on account. Based on past experience, sales are expected to be collected in the following pattern:

43%	in the month of sale
48%	in the month following sale
9%	uncollectible

   

The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will be $142,000.

c.	The company maintains finished goods inventories equal to 9% of the following month’s sales. The inventory of finished goods on July 1 will be 540 pairs.

d.

Each pair of swim fins requires 4 pounds of geico compound. To prevent shortages, the company would like the inventory of geico compound on hand at the end of each month to be equal to 20% of the following month’s production needs. The inventory of geico compound on hand on July 1 will be 4,872 pounds.

e.	Geico compound costs $2.50 per pound. Crydon pays for 60% of its purchases in the month of purchase; the remainder is paid for in the following month. The accounts payable balance for geico compound purchases will be $12,600 on July 1.

Required:

1a.	Prepare a sales budget, by month and in total, for the third quarter.

         

1b.	Prepare a schedule of expected cash collections, by month and in total, for the third quarter. (Do not round intermediate calculations.)

        

     

2.	Prepare a production budget for each of the months July through October.

         

3a.	Prepare a direct materials budget for geico compound, by month and in total, for the third quarter. (Do not round intermediate calculations.)

         

3b.	Prepare a schedule of expected cash disbursements for geico compound, by month and in total, for the third quarter. (Do not round intermediate calculations.)

        

Answer 1

SALES BUDGET
			JULY	AUG	SEP	QUARTER	OCT	NOV
Budgeted Sales units			6,000	7,000	5,000	18,000	4,000	3,000
Selling price per unit			17	17	17	17	17	17
Total Sales			102,000	119,000	85,000	306,000	68,000	51,000
EXPECTED CASH COLLECTIONS
			JULY	AUG	SEP	QUARTER
Beginning Recievables			142,000			142,000
July sales			43,860	48960		92,820
Aug sales				51170	57120	108,290
Sep Sales					36,550	36,550
Total Cash Collections			185,860	100,130	93,670	379,660
PRODUCTION BUDGET
			JULY	AUG	SEP	QUARTER	OCT	NOV
Budgeted Sales Units			6,000	7,000	5,000	18,000	4,000	3,000
Add: Desired Ending Finished inventory			630	450	360	360	270
Total Needs			6,630	7,450	5,360	18,360	4,270
Less: Beginning Finished Inventory			540	630	450	540	360
Required Production in units			6,090	6,820	4,910	17,820	3,910
RAW MATERIAL PURCHASE BUDGET
			JULY	AUG	SEP	QUARTER	OCT	NOV
Budgeted Production units			6,090	6,820	4,910	17,820	3,910
Material Required per unit			4	4	4	4	4
Total production requirement			24,360	27,280	19,640	71,280	15,640
Add: Desired Ending Inventory			5,456	3,928	3,128	3,128
Total needs			29,816	31,208	22,768	74,408
Less: Beginning Inventory			4,872	5,456	3,928	4,872
Purchase Units			24,944	25,752	18,840	69,536
Cost price per unit			2.50	2.50	2.50	2.50
Budgeted Purchase in $			62,360	64,380	47,100	173,840
EXPECTED CASH PAYMENTS
			JULY	AUG	SEP	QUARTER
Beginning Accounts payable			12,600			12,600
July month purchase			37416	24944		62,360
Aug month purchasse				38628	25752	64,380
Sep month purchasse					28260	28,260
Total Cash disbursement			50,016	63,572	54,012	167,600