Soprano Co. is in the process of preparing the second quarter budget for 2013, a

Question

Soprano Co. is in the process of preparing the second quarter budget for 2013, and the following data have been assembled The company sells a single product at a selling price of $41 per unit. The estimated sales volume for the next six months is as follows March Apri May 10,100 units August 6,300 units 6,000 units June 7,300 units July 8,200 units 9,300 units All sales are on account. The company's collection experience has been that 41% of a month's sales are collected in the month of sale, 51% are collected in the month following the sale, and 8% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e., accounts receivable less allowance for uncollectible accounts) will be $125,460 on March 31, 2013. Management's policy is to maintain ending finished goods inventory each month at a level equal to 53% of the next month's budgeted sales. The finished goods inventory on March 31, 2013, is expected to be 3,869 units. To make one unit of finished product, 4 pounds of materials are required. Management's policy is to have enough materials on hand at the end of each month to equal 41% of the next month's estimated usage. The raw materials inventory is expected to be 14,406 pounds on March 31, 2013 " The cost per pound of raw material is $6.00, and 78% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable balance for raw material purchases is expected to be $39,853 on March 31, 2013 Required a. Prepare a sales budget in units and dollars, by month and in total, for the second quarter (April, May, and June) of 2013

Explanation / Answer

a) Sales Budget - units and dollars April May June Total Expected Sales in units 7300 10100 8200 25600 Selling Price per unit 41 41 41 Total Sales 299300 414100 336200 1049600 b) Schedule of Cash collection Cash Collections from April May June Total March Sales 125460 125460 April Sales 122713 152643 275356 May Sales 169781 211191 380972 June Sales 137842 137842 Total Cash Collections 248173 322424 349033 919630 c) Production Budget April May June Total Beginning inventory of finished goods 3869 5353 4346 13568 Units to be produced 8784 9093 8783 26660 refer note 1 below Goods available for sale 12653 14446 13129 40228 Desired ending inventory 5353 4346 4929 14628 Quantity of goods 7300 10100 8200 25600 Note 1 Units to be produced = ending inventory + Sales unit - opening inventory April May June Total Desired ending inventory 5353 4346 4929 14628 Units to be sold 7300 10100 8200 25600 Goods required 12653 14446 13129 40228 Less : opening inventory 3869 5353 4346 13568 Units to be produced 8784 9093 8783 26660 d) Material Purchase Budget April May June Total Beginning inventory of raw material 14406 16564 13448 44418 Purchase of raw material 31358 37284 34604 103246 refer note 2 below Raw material available for use 45764 53848 48052 147664 Desired ending inventory of Raw material 16564 13448 15252 45264 Quantity of Raw material to be used in production 29200 40400 32800 102400 Note 2 Raw material purchase = ending inventory + Sales unit - opening inventory April May June Total Desired ending inventory of Raw material (41% of next months requirement) 16564 13448 15252 45264 Raw material required for production ( 4 * monthly sales unit) 29200 40400 32800 102400 Raw material required 45764 53848 48052 147664 Less : Beginning inventory of raw material 14406 16564 13448 44418 Raw material to be purchased 31358 37284 34604 103246 Cost of Raw material per pound 6 6 6 Raw material purchased ( in dollars) 188148 223704 207624 619476 e) Cash payments schedule for materials April May June Total March purchases 8767.66 8767.66 April purchases 146755.44 41392.56 188148.00 May purchases 174489.12 49214.88 223704.00 June purchases 161946.72 161946.72 Total Cash Payments 155523.10 215881.68 211161.60 582566.38

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