Background - Production and purchases budgets

Now that two products are being produced, planning for production and raw materials purchases has become more complicated. Pat has asked you to prepare some budgets related to the desks being produced for the three months of June, July, August and for the three months in total. Pat is specifically interested in the preparation of a production budget for desks and a purchases budget for the wood that is used. The following sales related information is provided:

	Sales Forecast: Desks
Month		Sales in Units
June		30
July		35
August		40
September		50

Product Budget Information

Production of the desks will be based upon the sales forecast above. Note that you must also budget production for the month of September in order to complete the production and purchases budgets for the three months ended in August.

Proudction Information

Month end desired ending inventory - percent of next month's sales in units (10%)

Finished ending inventory units, May 31st (14)

Desired ending inventory units for September (16)

Purchases Budget Information

Pat needs to purchase wood in order to manufacture desks. Each desk requires 56 sq ft of wood. Since ending inventory balances are dependent on the next month's production, you will need to estimate material needs for september. Estimates regarding the purchase of raw materials are included in the following table:

Raw materials purchasing information - wood

Month end desired ending inventory - percent of next month's production needs (10%)

Ending inventory, May 31st - Sq Ft of wood (300)

Cost per sq ft of wood ($1.25)

Square feet of wood per desk (56)

Background - Cash Budget

Having prepared a production and purchases budget for the manufacture of desks, Pat now is in need of a three month cash budget for the Goodwood Collections retail store. Recall that the retail store is operated independently of the prcesses employed for manufacturing bookcases and desks. The following information is provided for the months of June, July, and August.

a. Pat provides you with the following actual and budgeted total sales by month:

April actual sales $95,000

May actual sales 100,000

June budgeted sales 99,000

July budgeted sales 94,000

August budgeted sales 90,000

September budgeted sales 98,000

b. Cash sales are 75% of each month's total sales. Credit sales are 25% of each month's total sales. From past experience 60% of credit sales are collected in the month of the sale, 30% are collected in the month following sale, 8% are collected two months following sale, and 2% are never collected: bad debts.

c. Purchases of inventory each month are 50% of next month's sales, all on account. Company policy is to pay for 70% of purchases in the month of purchase, and 30% in the following month.

d. The following expenses are budgeted for each month and paid in cash

Advertising expense 4,400

Freight out expense 1,060

Insurance expense 1,400

Legal service expense 750

Rent expense 2,150

Salaries and wages expense 16,000

Utilities expense 860

Interest expense 270

e. The following additional information is also relevant to the operations of the goodwood collections retail store:

Cash as of May 31st 18,000

Accounts receivable as of May 31st 11,400

Accounts payable as of May 31st 14,850

New displays will be purchased for cash in July 24,000

A cash payment will be made on the note payable in August 19,000

Depreciation expense each month 2,100

Questions:

1. Prepare a schedule of cash collections for the months of June, July, and August. Round all answers to the nearest dollar. Check figure: total collections for June = $98,500

2. Prepare a schedule of cash disbursements for the months of June, July, and August. Round all amounts to the nearest dollar. Check figure: total disbursements for June = $47,750

3. Prepare a cash budget for the months of June, July, and Augst and the three months in total. Round all amounts to the nearest dollar. Check figure: ending cash balance for August = $35,735