Freese, Inc., is in the process of preparing the fourth quarter budget for 2016,

Question

Freese, Inc., is in the process of preparing the fourth quarter budget for 2016, and the following data have been assembled:

The company sells a single product at a price of $70 per unit. The estimated sales volume for the next six months is as follows:

All sales are on account. The company's collection experience has been that 30% of a month's sales are collected in the month of sale, 68% are collected in the month following the sale, and 2% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e., accounts receivable less allowance for uncollectible accounts) will be $742,560 on September 30, 2016.

Management's policy is to maintain ending finished goods inventory each month at a level equal to 30% of the next month's budgeted sales. The finished goods inventory on September 30, 2016, is expected to be 4,320 units.

To make one unit of finished product, 6 pounds of materials are required. Management's policy is to have enough materials on hand at the end of each month to equal 40% of the next month's estimated usage. The raw materials inventory is expected to be 36,288 pounds on September 30, 2016.

The cost per pound of raw material is $7, and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable for raw material purchases is expected to be $191,419 on September 30, 2016.

Required:
a. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter (October, November, and December) of 2016.

b. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2016.

c. Prepare a production budget in units, by month and in total, for the fourth quarter of 2016.

d. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2016.

e. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2016. (Do not round intermediate calculations.)

September 15,600 units October 14,400 units November 16,800 units December 24,000 units January 10,800 units February 12,000 units October November December Total Expected sales in units Selling price per unit Total sales

Explanation / Answer

SALES BUDGET Oct Nov Dec Q-4 Budgeted Sales units 14,400 16,800 24,000 55,200 Selling price per unit 70 70 70 70 Total Sales 1,008,000 1,176,000 1,680,000 3,864,000 EXPECTED CASH COLLECTIONS Oct Nov Dec Q-4 Sep Sales 742,560 742,560 October sales 302400 685440 987,840 November Sales 352,800 799,680 1,152,480 December Sales 504000 504,000 Total Cash Collections 1,044,960 1,038,240 1,303,680 3,386,880 PRODUCTION BUDGET Oct Nov Dec Q-4 Jan Feb Budgeted Sales Units 14,400 16,800 24,000 55,200 10,800 12,000 Add: Desired Ending Finished inventory 5,040 7,200 3,240 3,240 3,600 Total Needs 19,440 24,000 27,240 58,440 14,400 Less: Beginning Finished Inventory 4,320 5,040 7,200 4,320 3,240 Required Production in units 15,120 18,960 20,040 54,120 11,160 RAW MATERIAL PURCHASE BUDGET Oct Nov Dec Q-4 Jan Budgeted Production Units 15,120 18,960 20,040 54,120 11,160 RM Requirement per unit in pounds 6 6 6 6 6 Total Raw material required in pounds 90,720 113,760 120,240 324,720 66,960 Add: Desired Ending Inventory 45,504 48,096 26,784 26,784 Total needs 136,224 161,856 147,024 351,504 Less: Beginning Inventory 36,288 45,504 48,096 36,288 Budgeted Purchase in pounds 99,936 116,352 98,928 315,216 Cost per Ppound 7 7 7 7 Budgeted Purchase in $ 699,552 814,464 692,496 2,206,512 EXPECTED CASH PAYMENTS Oct Nov Dec Q-4 Beginning Accounts payable 191,419 191419 Oct Purchases 489686 209866 699552 Nov Purchases 570125 244339 814464 Dec Purchases 484747 484747 Total Cash disbursement 681,105 779,991 729,086 2,190,182

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