Sales, production, purchases, and cash budgets Freese, Inc., is in theprocess of preparing the fourth quarter budget for 2013, and the following data have been assembled:• The company sells a single product at a price of $60 per unit. The estimatedsales volume for the next six months is as follows: September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000 unitsOctober . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 unitsNovember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 unitsDecember . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 unitsJanuary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 unitsFebruary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 units• All sales are on account. The company’s collection experience has beenthat 32% of a month’s sales are collected in the month of sale, 64% are collectedin the month following the sale, and 4% are uncollectible. It is expected that thenet realizable value of accounts receivable (i.e., accounts receivable less allowance for uncollectible accounts) will be $499,200 on September 30, 2013.• Management’s policy is to maintain ending finished goods inventory eachmonth at a level equal to 40% of the next month’s budgeted sales. The finished goods inventory on September 30, 2013, is expected to be 4,800 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 30% of the next month’s estimated usage. The raw materialsinventory is expected to be 19,200 pounds on September 30, 2013.• The cost per pound of raw material is $4, 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 $75,960 on September 30, 2013.Required:a. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (October, November, and December) of 2013.b. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2013.c. Prepare a production budget in units, by month and in total, for the fourth quarter of 2013.d. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2013.e. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2013.
Sales, production, purchases, and
process of preparing the fourth quarter budget for 2013, and the following data have been assembled:
• The company sells a single product at a price of $60 per unit. The estimated
sales volume for the next six months is as follows:
September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000 units
October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 units
November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 units
December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 units
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 units
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 units
• All sales are on account. The company’s collection experience has been
that 32% of a month’s sales are collected in the month of sale, 64% are collected
in the month following the sale, and 4% are uncollectible. It is expected that the
net realizable value of
• Management’s policy is to maintain ending finished goods inventory each
month at a level equal to 40% of the next month’s budgeted sales. The finished goods inventory on September 30, 2013, is expected to be 4,800 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 30% of the next month’s estimated usage. The raw materialsinventory is expected to be 19,200 pounds on September 30, 2013.
• The cost per pound of raw material is $4, 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 $75,960 on September 30, 2013.
Required:
a. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (October, November, and December) of 2013.
b. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2013.
c. Prepare a production budget in units, by month and in total, for the fourth quarter of 2013.
d. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2013.
e. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2013.
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