Sales, production, purchases, and cash budgets Soprano Co. is in the process of preparing the second quarter budget for 2010, and the following data have been assembled:
- The company sells a single product at a selling price of $40 per unit. The estimated sales volume for the next six months is as follows:
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March
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6,000 units
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April
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7,000 units
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May
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10,000 units
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June
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8,000 units
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July
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9,000 units
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August
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6,000 units
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All sales are on account. The company's collection experience has been that 40% of a month's sales are collected in the month of sale, 55% are collected in the month following the sale, and 5% are uncollectible. It is expected that the net realizable value of accounts receivable (i.e., accounts receivable less allowance for uncollectible accounts) will be $132,000 on March 31, 2010.
- Management's policy is to maintain ending finished goods inventory each month at a level equal to 50% of the next month's budgeted sales. The finished goods inventory on March 31, 2010, is expected to be 3,500 units.
- To make one unit of finished product, 3 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 10,200 pounds on March 31, 2010.
- The cost per pound of raw material is $6.00, and 80% 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 $26,280 on March 31, 2010.
Required:
a. Prepare a sales budget in units and dollars, by month and in total, for the second quarter (April, May, and June) of 2010.
b. Prepare a schedule of cash collections from sales, by month and in total, for the second quarter of 2010.
c. Prepare a production budget in units, by month and in total, for the second quarter of 2010.
d. Prepare a materials purchases budget in pounds, by month and in total, for the second quarter of 2010.
e. Prepare a schedule of cash payments for materials, by month and in total, for the second quarter of 2010.