1. Prepare a sales budget for December through April. The selling price per unit is $40.00. Use the last five digits of your student identification number to fill in the blanks on the budgeted sales in units. If your number contains a 0 use 10 instead. For example, if the last five digits in your student ID number are 91274, the budgeted sales in units would be: December of the previous year 90,000 January 10,000 February 20,000 March 70,000 April 40,000

2. Prepare a purchases budget for January through March, and the first quarter in total. Assume that the company only sells one product that can be purchased at $15.00 per unit. The market for this product is very competitive and customers highly value service such as quality and on time delivery of the product. Also assume that currently it is companys inventory policy that ending inventory should equal 40% of next months projected sales.

3. Prepare a cash budget for January through March and for the first quarter in total. The company maintains a minimum cash balance of $50,000.00, and this was the balance in the cash account on January 1. Past experience shows that 30% of sales are collected in the month of the sale, and 70% in the month following the sale. Labor cost is $25,000 per month in fixed salaries and a sales commission of $15 per unit. Other monthly expenses include $17,000 for rent, $4,000 for advertising, and $6,000 for depreciation. All costs are paid in the current month except inventory purchases, which are paid in the month following purchase (i.e. January purchases are paid in February). On January 1st there was an outstanding accounts payable balance of $100,000. The company has an open line of credit with a bank and can borrow at an annual rate of 12%. For simplification assume that all loans are made at the beginning of the month and repayments are made at the end, and interest is only paid at the time when repayment is made. Additionally, all loans and repayments (not the interest portion) can only be made in increments of $1000 and the company would like to pay its debts, or a portion thereof, as soon as it has enough cash to do so.

4. Prepare the Budgeted Income Statement based on the information given above. Label this budget scenario as A.,

5. Repeat steps 2-4 for budget scenarios B and C using the following inventory policy assumptions: Desired Ending Inventory B. 90% C. 10%

6. Write a brief analysis of the three inventory policies and explain which policy the company should choose. Your write-up should include a discussion of the results you obtained from the analyses above as well as any other issues that need to be considered when deciding about a suitable inventory policy. Your report should be in the form of a 1 page Memo to the President of the company (make up a name). Assume that you are writing on behalf of a financial consultant advising the President about the companys inventory policy. Organization, grammar, and spelling are important.