Question

1.

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

	April	May	June	Total
Budgeted sales (all on account)	$330,000	$530,000	$210,000	$1,070,000

From past experience, the company has learned that 25% of a month’s sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $260,000, and March sales totaled $290,000.

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

2.

Pearl Products Limited of Shenzhen, China, manufactures and distributes toys throughout South East Asia. Three cubic centimeters (cc) of solvent H300 are required to manufacture each unit of Supermix, one of the company’s products. The company now is planning raw materials needs for the third quarter, the quarter in which peak sales of Supermix occur. To keep production and sales moving smoothly, the company has the following inventory requirements:

The finished goods inventory on hand at the end of each month must equal 3,000 units of Supermix plus 20% of the next month’s sales. The finished goods inventory on June 30 is budgeted to be 14,800 units.

The raw materials inventory on hand at the end of each month must equal one-half of the following month’s production needs for raw materials. The raw materials inventory on June 30 is budgeted to be 90,000 cc of solvent H300.

The company maintains no work in process inventories.

A monthly sales budget for Supermix for the third and fourth quarters of the year follows.

	Budgeted Unit Sales
July	59,000
August	64,000
September	74,000
October	54,000
November	44,000
December	34,000

Required:

1. Prepare a production budget for Supermix for the months July, August, September, and October.

3. Prepare a direct materials budget showing the quantity of solvent H300 to be purchased for July, August, and September, and for the quarter in total.

Answer 1

1) Production budget

	July	August	September	October
Sale unit	59000	64000	74000	54000
Add: Desired ending inventory	15800	17800	13800	11800
Total needs	74800	81800	87800	65800
Less; Beginning inventory	-14800	-15800	-17800	-13800
Production units	60000	66000	70000	52000

2) Direct material budget

	July	August	September	Quarter
No of unit produced	60000	66000	70000	196000
Direct material per unit	3	3	3	3
Direct material need for production	180000	198000	210000	588000
Add: Desired ending inventory	99000	105000	78000	78000
Total	279000	303000	288000	666000
Less; Beginning inventory	-90000	-99000	-105000	-90000
Direct material purchase	189000	204000	183000	576000