The following information concerns operation for Year 2- the coming year and the first two quarters of Year 3:
- The company’s single product sells for $9 per unit. Budgeted sells for the next six quarters are as follows (all sales are on credit):
| Year 2 Quarter | Year 3 Quarter | ||
| 1 | 2 3 | 4 | 1 2 |
Budgeted sales 40,000 60,000 100,000 50,000 70,000 80,000 in units
- Sales are collected in the following pattern: 75% in the quarter sales are made, and the remaining 25% in the following quarter. On January 1, Year 2, the company’s balance sheet showed $65,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are negligible and can be ignored.
- The company desires an ending finished goods inventory at the end of each quarter equal to 30% of the budgeted unit sales for the next quarter. On December 31, Year 1, the company had 12,000 units on hand.
- Five pounds of raw materials are required to complete one unit of product. The company requires ending raw materials inventory at the end of each quarter equal to 10% of following quarter’s production needs. On December 31, Year 1, the company had 23,000 pounds of raw materials on hand.
- The raw material cost $0.80 per pound. Raw materials purchases are paid for in the following pattern: 60% paid in the quarter the purchases are mad, and the remaining 40% paid in the following quarter. On January 1, Year 2, the company’s balance sheet showed $81,500 in accounts payable for raw material purchases, all of which will be paid for in the first quarter of the year.
Required:
Prepare the following budgets and schedules for the year, showing both quarterly and total figures:
- A sales budget and a schedule of expected cash collections. (4 Marks)
- A production budget (3 Marks)
- A direct materials budget and a schedule of expected cash payments for purchases of materials.
(8 Marks)
