26. Gates Industries prepared the following budget for July as part of its master budget for the calendar year:

Gates plans that sales will remain constant each month for the first 6 months of the year, then go down 10% each month in the third quarter, and go up again by 20% each month in the fourth quarter.
Selling price per unit, direct materials and variable overhead costs per unit, variable operating expenses, and total fixed costs are anticipated to remain constant each month. Half of fixed costs consist of depreciation expense. Gates plans to end each month with 10% of the following month’s sales needs in finished goods inventory, and 20% of the following month’s production needs in raw materials inventory.
The cash balance at the beginning of July is $50,000,000. Gates makes 40% of its sales in cash.
Of the credit sales, 20% is collected in the month of sale, 45% in the month after sale, 30% in the second month following sale, and 5% is uncollectible. Materials costs are paid in the month following purchase, and all other costs are paid for as incurred.
This year, Gates is planning to reduce its direct labor costs per unit by 2% each month.

a. Prepare a cash budget for Gates for July.

b. Prepare a flexible budget for July for sales 5% and 10% above and below expectations.

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Sales revenue (for 81,000 units) Cost of goods sold Direct materials used Direct labor $ 36,450,000 $6,480,000 4,860,000 Variable factory overhead 7,290,000 Fixed factory overhead 1,000,000 19,400,000 Gross margin Operating expenses Variable Fixed Operating income $ 16,600,000 4,050,000 2,500,000 $ 10,270,000