Question
1. The W. Company has budgeted the following unit sales: 2002 January February March April May Units 6,000 8,000 9,000 12,000 10,000 The finished goods units on hand at December 31, 2001 were 600. Each unit requires 3 pour of raw material, which is estimated to cost an average of $2 per pound. It is the company's policy to maintain a finished goods inventory at the end of each month equal to 10% of next month's anticipated sales. They also have a policy of maintaining a raw material inventory a the end of each month equal to 30% of the pounds needed for the following month's production. There was 5,580 pounds of raw material on hand at December 31, 2001 a) Prepare a production budget for the first quarter of 2002 b) Prepare a direct materials budget for the first quarter of 2002. 2. The PP Ltd. planned a cash budget for the last quarter of 2001. The budgeted trading accounts for October 2001 to January 2002 are as follows: October November December January 2002 Sales Cost of sales Gross Profit 650,000 387,000 263,000 580,000 266,000 314,000 460,000 244,000 216,000 520,000 255,000 265,000 The cash balance at the end of September 2001 is estimated to be $180,000 Collections on account receivable are estimated to be as follows 50% in the month of sale (a 2% discount is given in this period) 20% in the month following the sale 30% in the second month following the sale Uncollected sales from August are $128,000 and the total September sales are $700,000 60% of purchases are paid in the month of purchase in order to take advantage of a 10% prompt settlement discount. The balance is disbursed in the month after sale. Accounts pay at the end of September for inventory purchases is $84,000
Explanation / Answer
Solution 1 a:
Solution 1b:
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W. Company Production Budget First quarter of the year Particulars January Feburary March Q1 April Unit Sales 6000 8000 9000 23000 12000 Desired Ending Inventory (10% of following month sale) 800 900 1200 1200 1000 Total Needed 6800 8900 10200 24200 13000 Less: Beginning Inventory 600 800 900 600 1200 Unit Produced 6200 8100 9300 23600 11800
