Question

Preston, Inc., manufactures wooden shelving units for collecting and sorting mail. The company expects to produce 260 units in July and 400 units in August. Each unit requires 11 feet of wood at a cost of $0.90 per foot. Preston wants to always have 260 feet of wood on hand in materials inventory.

Compute Preston's direct materials purchases budget for July and August.

Fillmore, Inc., expects sales of its housing for electric motors to be $87,000, $76,000, and $89,000 for January, February, and March, respectively. Its variable selling and administrative expenses are 11 percent of sales, and fixed selling and administrative expenses are $14,000 per month.

Compute Fillmore’s selling and administrative expense budget for January, February, and March.

Getty Company expects sales for the first three months of next year to be $215,000, $240,000 and $300,000, respectively. Getty expects 20 percent of its sales to be cash and the remainder to be credit sales. The credit sales will be collected as follows: 10 percent in the month of the sale and 90 percent in the following month.

Compute a schedule of Getty’s cash receipts for the months of February and March.

Answer 1

1) Direct material budget

	July	August
Production Units	260	400
Material per unit	11	11
Material needed for production	2860	4400
Add: Desired ending inventory	260	260
Total	3120	4660
Less: Beginning inventory	-260	-260
Material purchase	2860	4400
Cost per pound	0.90	0.90
Direct material purchase	2574	3960

2) Selling and administrative Budget

Sales	87000	76000	89000
Variable selling and administrative expense	9570	8360	9790
Fixed selling and administrative expense	14000	14000	14000
Total Selling and administrative expense	23570	22360	23790

3) Schedule of cash receipt

	February	March
Cash sales	240000*20% = 48000	60000
Collection from customer
January Sales	215000*80%*90% = 154800
February Sales	240000*80%*10% = 19200	172800
March Sales		300000*80%*10% = 24000
Total Cash receipts	222000	256800