Swanson, Inc., manufactures an advanced swim fin for scuba divers. Management is

Question

Swanson, Inc., manufactures an advanced swim fin for scuba divers. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist in preparing the budget: a. The Marketing Department has estimated sales as follows for the remainder of the year (in pairs of swim fins). The selling price of the swim fins is $22 per pair July August September 6,500 October 7,500 November 5,500 December 4,500 3,500 3,500 b. All sales are on account. Based on past experience, sales are expected to be collected in the following pattern 43% in the month of sale 48% in the month following sale 9% uncollectible The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will be $157,000 C. The company maintains finished goods inventories equal to 9% of the following month's sales. The inventory of finished goods on July 1 will be 585 pairs d. Each pair of swim fins requires 4 pounds of geico compound. To prevent shortages, the company would like the inventory of geico compound on hand at the end of each month to be equal to 20% of the following month's production needs. The inventory of geico compound on hand on July 1 will be 5,272 pounds. e. Geico compound costs $2.50 per pound. Crydon pays for 60% of its purchases in the month of purchase; the remainder is paid for in the following month. The accounts payable balance for geico compound purchases will be $13,600 on July 1 Required 1a. Prepare a sales budget, by month and in total, for the third quarter AugustSeptember Quarter - Total Total budgeted sales

Explanation / Answer

1 July August September Quarter Budgeted sales in units 6500 7500 5500 19500 X Price per unit 22 22 22 22 Sales 143000 165000 121000 429000 1b Budgeted Cash receipt July August September Quarter Accounts receivable 157000 157000 Collection for July 61490 68640 130130 Collection for August 70950 79200 150150 Collection for September 52030 52030 Total collection 218490 139590 131230 489310 2 Production budget July August September Quarter Budgeted sales 6,500 7,500 5,500 19,500 Add Ending inventory 675 495 405 405 Total needs 7,175 7,995 5,905 19,905 Less beginning inventory 585 675 495 585 Units to be produced 6,590 7,320 5,410 19,320 3 Direct material budget July August September Quarter Number of units produced 6,590 7,320 5,410 19,320 Basis of units 4 4 4 4 Production needs 26,360 29,280 21,640 77,280 Add ending material inventory 20% 5856 4328 3528 3528 Total material requirements 32216 33608 25168 80808 Less beginning material inventory 5272 5856 4328 5272 Material to be purchased 26944 27752 20840 75536 Material price per unit 2.5 2.5 2.5 2.5 Total cost of direct material purchases 67360 69380 52100 188840 3b Particulars July August September Quarter Accounts payable 13600 13600 Payment for july 40416 26944 67360 Payment for August 41628 27752 69380 Payment for september 31260 31260 Total payments 54016 68572 59012 181600

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