Auburn Enterprises manufactures soy candles to be sold in specialty stores. The primary material is soybean which they process into a material that can be used to make candles without paraffin. The process involves melting the soybean, adding fragrance oil and pouring the wax in a jar with a wick.

The following table reflects the sales forecast for the remainder of the current year for a popular candle, the SpringBreeze.

Auburn's accountant has gathered production and cost information in order to develop the second quarter (April, May and June) budgets for the SpringBreeze candle.

a) Management likes to maintain an inventory level for SpringBreeze candles of 20% of the sales projected for the next month.

b) Each candle requires 400 ml (0.4 litre) of soybean wax which the company buys at a cost of $12 per litre (1000ml). In order to ensure continuous production, management requires that the company have an ending soybean wax inventory of 25% of the following months' production needs.

c) All sales are on a credit basis. Collection history has been 25% in the month of sale, 45%

the following month and 30% two months after the month of sale.

d) Inventories at the end of March 31 are expected to be as follows: Finished goods 4000 candles Raw materials - soybeans wax 1960 litres

REQUIRED: 1. Prepare a production budget for the months of April, May and June as well as a total column for the quarter. (5 marks) 2. Prepare a Direct Materials Budget for soybean wax for the same period. (8 marks) 3. Prepare a Cash Receipts Budget for the same period. (5 marks)

QUESTION 1 (30 minutes, 18 marks) Auburn Enterprises manufactures soy candles to be sold in specialty stores. The primary material is soybean which they process into a material that can be used to make candles without paraffin. The process involves melting the soybean, adding fragrance oil and pouring the wax in a jar with a wick. The following table reflects the sales forecast for the remainder of the current year for a popular candle, the Spring Breeze. Unit Selling Sales Month Sales Price Revenue January 25,000 $20 $ 500,000 February 24,000 $20 $ 480,000 March 22,000 $20 $ 440,000 April 20,000 $20 $ 400,000 May 18,000 $20 $360,000 June 15,000 $20 $ 300,000 July 18,000 $20 $360,000 August 20,000 $20 $ 400.000 Auburn's accountant has gathered production and cost information in order to develop the second quarter (April, May and June) budgets for the SpringBreeze candle. a) Management likes to maintain an inventory level for Spring Breeze candies of 20% of the sales projected for the next month. b) Each candie requires 400 ml (0.4 litre) of soybean wax which the company buys at a cost of $12 per litre (1000ml). In order to ensure continuous production management requires that the company have an ending soybean wax inventory of 25% of the following months production needs. c) All sales are on a credit basis. Collection history has been 25% in the month of sale, 45% the following month and 30% two months after the month of sale. d) Inventories at the end of March 31 are expected to be as follows: Finished goods 4000 candles Raw materials - soybeans wax 1960 litres REQUIRED: 1. Prepare a production budget for the months of April, May and June as well as a total column for the quarter. (5 marks) 2. Prepare a Direct Materials Budget for soybean wax for the same period. (8 marks) 3. Prepare a Cash Receipts Budget for the same period