5

Production and Purchases Budgets in Units At the end of business on June 30, 2009, the Wooly Rug Company had 100,000 square yards of rugs and 300,000 pounds of raw materials on hand. Budgeted sales for the third quarter of 2009 are:

July	180,000 sq. yards
August	200,000 sq. yards
September	160,000 sq. yards
October	160,000 sq. yards

The Wooly Rug Company wants to have sufficient square yards of finished product on hand at the end of each month to meet 40 percent of the following month's budgeted sales and sufficient pounds of raw materials to meet 30 percent of the following month's production requirements. Five pounds of raw materials are required to produce one square yard of carpeting. Prepare a production budget for the months of July, August, and September and a purchases budget in units for the months of July and August.

Budgeted production - sq. yards	160,000	184,000	160,000

Purchases in pounds	??????	???????

Question 6

Cash Budget The Peoria Supply Company sells for $30 one product that it purchases for $20. Budgeted sales in total dollars for next year are $720,000. The sales information needed for preparing the July budget follows:

May	$ 30,000
June	42,000
July	51,000
August	54,000

Account balances at July 1 include these:

Cash	$ 20,000
Merchandise inventory	18,000
Accounts receivable (sales)	23,000
Accounts payable (purchases)	12,000

The company pays for one-half of its purchases in the month of purchase and the remainder in the following month. End-of-month inventory must be 50 percent of the budgeted sales in units for the next month. A 2 percent cash discount on sales is allowed if payment is made during the month of sale. Experience indicates that 50 percent of the billings will be collected during the month of sale, 40 percent in the following month, 8 percent in the second following month, and 2 percent will be uncollectible. Total budgeted selling and administrative expenses (excluding bad debts) for the fiscal year are estimated at $180,000 , of which one-half is fixed expense (inclusive of a $18,000 annual depreciation charge). Fixed expenses are incurred evenly during the year. The other selling and administrative expenses vary with sales. Expenses are paid during the month incurred. (Round your answers to the nearest whole number.)

(a) Prepare a schedule of estimated cash collections for July.

Current month's sales	???????
Previous month's sales	16,800
Two months' prior sales	2,400
Total cash collections	????????

(b) Prepare a schedule of estimated July cash payments for purchases. For this, perform your calculation using units rounding up to the nearest whole unit. Then convert to dollars for your answer.

Current month's purchases	17,000
Beginning accounts payable	12,000
Total cash payments	44,700

(c) Prepare schedules of July selling and administrative expenses, separately identifying those requiring cash disbursements.

Selling and administrative expenses:
Fixed	7,500
Cash payment		6,000
Variable	6,375	6,375
Total expenses and cash disbursements	13,875	12,375

(d) Prepare a cash budget in summary form for July.

Cash receipts		????????
Cash disbursements:
Merchandise	29,000
Selling and administrative	12,375	???????
Excess receipts (disbursements)		???????