Question #1: A company manufactures widgets. Based on an analysis, we find that each widget needs 3/4 pound of “gunk.” The following is information on the budgeted production of widgets in units for the following three months:
July August September
Budgeted production 21,000 20,000 24,000
We know that this company desires to maintain monthly ending inventories of “gunk” amounting to 25% of the following month's budgeted production needs. The cost per pound of “gunk” is $2.12.
Instructions
Prepare a direct materials purchases budget for the month of August.
Question #3
Stovall Company’s management is trying to predict collections from customers for the months of October and November. Management estimates that credit sales for August, September, October, and November will be $270,000, $375,000, $420,000, and $240,000, respectively. Typically, the Company collects from its customers as follows:
In month of sale 25%
In first month after sale 60%
In second month after sale 10%
Instructions
Prepare a schedule to determine the collections from customers in October and November. Be sure that you show your calculations.
Question 1
Direct materials purchases budget
| August | |
| Materials required for production | 15,000 (20,000*3/4) |
| Desired ending inventory | 4,500 (24,000*3/4*25%) |
| Production needs | 19,500 |
| Beginning inventory | (3,750) (20,000*3/4*25%) |
| Raw material purchases | 15,750 |
| Cost per pound | $2.12 |
| Direct material purchases | $33,390 |
Question 2
| October | November | |
| Cash collected in the month of sale | $105,000 ($420,000*25%) | $60,000 ($240,000*25%) |
| Cash collected in the month following the sale | $225,000 ($375,000*60%) | $252,000 ($420,000*60%) |
| Cash collected in the second month after the sale | $27,000 ($270,000*10%) | $37,500 ($375,000*10%) |
| Total cash collections | $357,000 | $349,500 |
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