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 $70 per unit. The estimated sales volume for the next six months is as follows:

  September	10,400	units
  October	9,600	units
  November	11,200	units
  December	16,000	units
  January	7,200	units
  February	8,000	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 $495,040 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 2,880 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 40% of the next month's estimated usage. The raw materials inventory is expected to be 20,160 pounds on September 30, 2016.
• The cost per pound of raw material is $6, 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 $91,152 on September 30, 2016.

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

	October	Novemeber	Deecember	Total
Beginning inventory of raw materials	20,160
Purchase of raw materials
Raw materials available for use
Desired ending inventory of raw materials
Quantity of raw materials to be used in production

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.)

Cash payments for:	October	November	December	Total
September purchases
October purchases
November purchases
December purchases
Total cash payments

Answer 1

Solution d:

Sales Budget - Freese Inc.
Particulars	October	November	December	Total
Sales units	9600	11200	16000	36800
Selling price per unit	$70.00	$70.00	$70.00	$70.00
Budgeted Sales Revenue	$672,000.00	$784,000.00	$1,120,000.00	$2,576,000.00

Production Budget - Freese Inc.
Particulars	October	November	December	Total	January
Sales units	9600	11200	16000	36800	7200
Add: Desired ending inventory (30% of next month sales)	3360	4800	2160	2160	2400
Less: Opening Inventory	2880	3360	4800	2880	2160
Budgeted Production units	10080	12640	13360	36080	7440

Raw Material Budget - Freese Inc.
Particulars	October	November	December	Total
Budgeted Production Units	10080	12640	13360	36080
Material needed per unit (In Pound)	5	5	5	5
Material needed for budgeted production	50400	63200	66800	180400
Add: Desired units of material in ending inventory (40% of next month material requirements)	25280	26720	14880	14880
Less: units of material in beginning inventory	20160	25280	26720	20160
Budgeted material purchase units	55520	64640	54960	175120
Raw material cost per unit	$6.00	$6.00	$6.00	$6.00
Budgeted purchases of raw material	$333,120.00	$387,840.00	$329,760.00	$1,050,720.00

Solution e:

Schedule of Cash Payment
Cash payments for:	October	November	December	Total
September purchases	$91,152.00			$91,152.00
October purchases	$233,184.00	$99,936.00		$333,120.00
November purchases		$271,488.00	$116,352.00	$387,840.00
December purchases			$230,832.00	$230,832.00
Total cash payments	$324,336.00	$371,424.00	$347,184.00	$1,042,944.00