Chapter 14, Problem 14.24P

To determine

Concept Introduction:

Sales Budget-

A sales budget is a budget which is used to estimate the expected units of sales in dollars and also helps to determine the estimated earnings during a period.

Requirement 1-

To prepare:

Sales budget

Answer to Problem 14.24P

Freese Inc.
Sales budget
	October	November	December	Quarter
Sales in units	12,000	14,000	20,000	46,000
Selling price per unit	$60	$60	$60	$60
Dollar sales value($)	$720,000	$840,000	$1,200,000	$2,760,000

Explanation of Solution

Given,

• Sales units for October = 12,000
• Sales units for November = 14,000
• Sales units for December = 20,000
• Selling price per unit = $60

  $\begin{array}{l}\begin{array}{l}Salesunitsforquarter=Octobersales+Novembersales+Decembersales\hfill \\ Salesunitsforquarter=12,000+14,000+20,000\hfill \end{array}\\ Salesunitsforquarter=46,000\end{array}$

Dollar sales value for each month is calculated as follows-

  $\begin{array}{l}Dollarsalesvalue=Salesinunits\times Sellingpriceperunit\hfill \\ DollarsalesvalueforOctober=12,000\times \$60\hfill \\ \begin{array}{l}DollarsalesvalueforOctober=\$720,000\\ \\ \begin{array}{l}DollarsalesvalueforNovember=14,000\times \$60\hfill \\ \begin{array}{l}DollarsalesvalueforNovember=\$840,000\\ \\ DollarsalesvalueforDecember=20,000\times \$60\\ DollarsalesvalueforDecember=\$1,200,000\\ \\ DollarsalesvalueforQuarter=46,000\times \$60\\ DollarsalesvalueforQuarter=\$2,760,000\end{array}\hfill \end{array}\end{array}\hfill \end{array}$

Conclusion:

Thus, the sales budget has been prepared.

To determine

Concept Introduction:

Schedule of expected cash collection-

Schedule of expected cash collection is a schedule which represents all the cash collections from sales during a period. It is a part of master budget. It is prepared after preparing of sales budget but before preparing of cash budget.

Requirement 2-

To prepare:

Schedule of expected cash collection

Answer to Problem 14.24P

Freese Inc.
Schedule of expected cash collection
Cash collections from-	October	November	December	Total
September sales	499,200			499,200
October sales	230,400	460,800		691,200
November sales		268,800	537,600	806,400
December sales			384,000	384,000
Total cash collections	$729,600	$729,600	$921,600	2,380,800

Explanation of Solution

Given, Sales (Calculated in requirement 1)

• October sales = $720,000
• November sales = $840,000
• December sales = $1,200,000
October-

  $\begin{array}{l}CashcollectionsfromSeptembersales=Septembersalesunits*Salespriceperunit*64\%\hfill \\ CashcollectionsfromSeptembersales=13,000units*\$60*64\%\hfill \\ \begin{array}{l}CashcollectionsfromSeptembersales=\$499,200\\ \end{array}\hfill \\ CashcollectionsfromOctobersales=Octobersales*32\%\hfill \\ CashcollectionsfromOctobersales=\$720,000*32\%\hfill \\ CashcollectionsfromOctobersales=\$230,400\hfill \end{array}$

Total cash collections of October-

  $\begin{array}{l}Totalcashcollections=CashcollectionsfromSeptembersales+CashcollectionsfromOctobersales\hfill \\ Totalcashcollections=\$499,200+\$230,400\hfill \\ Totalcashcollections=\$729,600\hfill \end{array}$

November-

  $CashcollectionsfromOctobersales=Octobersales*\text{ 64}\%$

  $CashcollectionsfromOctobersales=\$720,000*64\%$

  $CashcollectionsfromOctobersales=\$460,800$

  $\begin{array}{l}CashcollectionsfromNovembersales=Novembersales*\text{ 32}\%\\ CashcollectionsfromNovembersales=840,000*\text{ 32}\%\\ CashcollectionsfromNovembersales=\$268,800\end{array}$

Total cash collections of November-

  $\begin{array}{l}Totalcashcollections=CashcollectionsfromOctobersales+CashcollectionsfromNovembersales\hfill \\ Totalcashcollections=\$460,800+\$268,800\hfill \\ Totalcashcollections=\$729,600\hfill \end{array}$

December-

  $\begin{array}{l}\begin{array}{l}CashcollectionsfromNovembersales=Novembersales*\text{ 64}\%\hfill \\ CashcollectionsfromNovembersales=\$840,000*64\%\hfill \\ \begin{array}{l}CashcollectionsfromNovembersales=\$537,600\\ \end{array}\hfill \\ CashcollectionsfromDecembersales=Decembersales*32\%\hfill \\ CashcollectionsfromDecembersales=\$1,200,000*32\%\hfill \end{array}\\ CashcollectionsfromDecembersales=\$384,000\end{array}$

Total cash collections of December-

  $\begin{array}{l}Totalcashcollections=CashcollectionsfromNovembersales+CashcollectionsfromDecembersales\hfill \\ Totalcashcollections=\$537,600+\$384,000\hfill \\ Totalcashcollections=\$921,600\hfill \end{array}$

Conclusion:

Thus, schedule of cash collections is prepared.

To determine

Concept Introduction:

Production Budget-

Production budget is a budget which shows the number of units to be produced or manufactured during a period of time.

Requirement 3-

To prepare:

Production Budget

Answer to Problem 14.24P

Freese Inc..
Production budget
	October	November	December	Total
Quantity to be sold	12,000	14,000	20,000	46,000
Desired ending inventory of finished goods	5,600	8,000	3,600	3,600
Goods available for sale	17,600	22,000	23,600	49,600
Beginning inventory of finished goods	(4,800)	(5,600)	(8,000)	(4,800)
Units to be produced	12,800	16,400	15,600	44,800

Explanation of Solution

Given,

Beginning inventory of October − 4,800 units

Quantity to be sold-

• October − 12,000 units
• November − 14,000 units
• December − 20,000 units
• January − 9,000 units

  $Desiredendinginventoryoffinishedgoods=\text{ 4}0\%*Nextmonth’ssales$

October-

  $\begin{array}{l}Desiredendinginventoryoffinishedgoods=\text{ 4}0\%*Novembersales\hfill \\ Desiredendinginventoryoffinishedgoods=\text{ 4}0\%*14,000\hfill \\ Desiredendinginventoryoffinishedgoods=5,600\hfill \end{array}$

November-

  $\begin{array}{l}Desiredendinginventoryoffinishedgoods=\text{ 4}0\%*Decembersales\hfill \\ Desiredendinginventoryoffinishedgoods=\text{ 4}0\%*20,000\hfill \\ Desiredendinginventoryoffinishedgoods=\text{ 8},000\hfill \end{array}$

December-

  $\begin{array}{l}Desiredendinginventoryoffinishedgoods=\text{ 4}0\%*Januarysales\hfill \\ Desiredendinginventoryoffinishedgoods=\text{ 4}0\%*9,000\hfill \\ Desiredendinginventoryoffinishedgoods=3,600\hfill \end{array}$

Beginning inventory of finished goods

• Ending inventory of finished goods of the previous month shall be the beginning inventory of finished goods
• October − 4,800 units
• November − 5,600 units
• December − 8,000 units
Now, we need to calculate units to be produced-

  $\begin{array}{l}Unitstobeproduced=Quantityofgoodssold+Endinginventoryoffinishedgoods\\ -Beginninginventoryoffinishedgoods\end{array}$

  $\begin{array}{l}October=12,000+5,600-4,800=12,800units\hfill \\ November=14,000+8,000-5,600=16,400units\hfill \\ December=20,000+3,600-8,000=15,600units\hfill \end{array}$

Conclusion:

Thus, Production budget is prepared.

To determine

Concept Introduction:

Materials purchase budget-

Material purchase budget is a budget which shows the material to be purchased during a period of time in order to fulfill the requirement of production budget.

Requirement 4-

To prepare:

Material purchase budget

Answer to Problem 14.24P

Freese Inc.
Material purchase budget
	October	November	December	Total
Budgeted production (units)	12,800	16,400	15,600	44,800
Material requirements per unit (pounds)	5	5	5	5
Quantity of raw materials to be used in production	64,000	82,000	78,000	224,000
Add: Desired ending inventory of raw materials	24,600	23,400	14,100	14,100
Raw materials available for use	88,600	105,400	92,100	238,100
Less: Beginning inventory of raw materials	(19,200)	(24,600)	(23,400)	(19,200)
Purchase of raw materials	69,400	80,800	68,700	218,900

Explanation of Solution

Given,

• Production Budget = Calculated in Req.3
• Material requirements per unit= 5
• Beginning inventory of raw materials of October = 19,200 pounds
Quantity of raw materials to be used in production-

  $\begin{array}{l}Quantityofrawmaterialstobeusedinproduction=ProductionBudget*Materialrequirementsperunit\hfill \\ October=12,800*5=64,000\hfill \\ November=16,400*5=82,000\hfill \\ December=15,600*5=78,000\hfill \end{array}$

Desired ending inventory of raw materials = 30%*Next month's Quantity of raw materials to be used in production

October-

  $\begin{array}{l}Desiredendinginventoryofrawmaterials=\text{ 3}0\%*Novemberrawmaterialstobeusedinproduction\hfill \\ Desiredendinginventoryofrawmaterials=\text{ 3}0\%*82,000\hfill \\ Desiredendinginventoryofrawmaterials=24,600\hfill \end{array}$

November-

  $\begin{array}{l}Desiredendinginventoryofrawmaterials=\text{ 3}0\%*Decemberrawmaterialstobeusedinproduction\hfill \\ Desiredendinginventoryofrawmaterials=\text{ 3}0\%*78,000\hfill \\ Desiredendinginventoryofrawmaterials=23,400\hfill \end{array}$

December-

  $\begin{array}{l}Desiredendinginventoryofrawmaterials=\text{ 3}0\%*Januaryrawmaterialstobeusedinproduction\hfill \\ Desiredendinginventoryofrawmaterials=\text{ 3}0\%*\left(9,400*5\right)\hfill \\ Desiredendinginventoryofrawmaterials=\text{ 3}0\%*47,000\hfill \\ Desiredendinginventoryofrawmaterials=14,100\hfill \end{array}$

Beginning inventory of raw materials

• Ending inventory of raw materials of the previous month shall be the beginning inventory of raw materials
• October − 19,200
• November − 24,600
• December − 23,400
Now, we need to calculate units to be purchased-

  $\begin{array}{l}\begin{array}{l}Purchaseofrawmaterials=Quantityofrawmaterialstobeusedinproduction\\ +Desiredendinginventoryofrawmaterials\\ -Beginninginventoryofrawmaterials\end{array}\hfill \\ October=64,000+24,600-19,200=69,400\hfill \\ November=82,000+23,400-24,600=80,800\hfill \\ December=78,000+14,100-23,400=\text{ 68,700}\hfill \end{array}$

Conclusion:

Thus, Purchase budget is prepared.

To determine

Concept Introduction:

Schedule of cash payments for material-

Schedule of expected cash payment is a schedule which represents all the cash payments to suppliers for purchases during a period. It is a part of master budget. It is prepared after preparing of purchase budget but before preparing of cash budget.

Requirement 5-

To prepare:

Schedule of expected cash payment

Answer to Problem 14.24P

Freese Inc.
Schedule of expected cash payment
Cash payments for-	October	November	December	Total
September purchases	75,960			75,960
October purchases	194,320	83,280		277,600
November purchases		226,240	96,960	323,200
December purchases			192,360	192,360
Total cash payments	270,280	309,520	289,320	869,120

Explanation of Solution

Given,

• Cash payments for September purchases- $75,960
• Purchases (Calculated in req.4)
October − 69,400

November − 80,800

December − 68,700

• Cost per pound of raw material = $4
October-

  $\begin{array}{l}CashpaymentsforOctoberpurchases=Octoberpurchaseunits*Costperpoundofrawmaterial*80\%\hfill \\ CashpaymentsforOctoberpurchases=69,400*\$4*70\%\hfill \\ CashpaymentsforOctoberpurchases=\$194,320\hfill \end{array}$

Total cash payments for October-

  $\begin{array}{l}TotalcashpaymentsforOctober=CashpaymentsforSeptemberpurchases+CashpaymentsforOctoberpurchases\hfill \\ TotalcashpaymentsforOctober=\$75,960+\$194,320\hfill \\ TotalcashpaymentsforOctober=\$270,280\hfill \end{array}$

November-

  $\begin{array}{l}CashpaymentsforOctoberpurchases=Octoberpurchaseunits*Costperpoundofrawmaterial*30\%\hfill \\ CashpaymentsforOctoberpurchases=69,400*\$4*30\%\hfill \\ \begin{array}{l}CashpaymentsforOctoberpurchases=\$83,280\\ \end{array}\hfill \\ CashpaymentsforNovemberpurchases=Novemberpurchaseunits*Costperpoundofrawmaterial*70\%\hfill \\ CashpaymentsforNovemberpurchases=80,800*\$4*70\%\hfill \\ CashpaymentsforNovemberpurchases=\$226,240\hfill \end{array}$

Total cash payments for November-

  $\begin{array}{l}\begin{array}{l}TotalcashpaymentsforNovember=CashpaymentsforOctoberpurchases+CashpaymentsforNovemberpurchases\hfill \\ TotalcashpaymentsforNovember=\$83,280+\$226,240\hfill \end{array}\\ TotalcashpaymentsforNovember=\$309,520\end{array}$

December-

  $\begin{array}{l}CashpaymentsforNovemberpurchases=Novemberpurchaseunits*Costperpoundofrawmaterial*30\%\hfill \\ CashpaymentsforNovemberpurchases=80,800*\$4*30\%\hfill \\ \begin{array}{l}CashpaymentsforNovemberpurchases=\$96,960\\ \end{array}\hfill \\ CashpaymentsforDecemberpurchases=Decemberpurchaseunits*Costperpoundofrawmaterial*70\%\hfill \\ CashpaymentsforDecemberpurchases=68,700*\$4*70\%\hfill \\ CashpaymentsforDecemberpurchases=\$192,360\hfill \end{array}$

Total cash payments for December-

  $\begin{array}{l}TotalcashpaymentsforDecember=CashpaymentsforNovemberpurchases+CashpaymentsforDecemberpurchases\hfill \\ TotalcashpaymentsforDecember=\$96,960+\$192,360\hfill \\ TotalcashpaymentsforDecember=\$289,320\hfill \end{array}$

Conclusion:

Thus, Schedule of expected cash payment is prepared.