Case #1

Rolan Corporation is preparing budgets for the upcoming quarter ending December 31. Budgeted sales (in units) for the next five months are:

October	20,000
November	60,000
December	50,000
January	34,000
February	35,000

Below is additional information that may be relevant in preparing the budgets.

• The company produces ladles that sell for $21.00 per unit.
• To guard against inventory stockouts, the company has a policy of maintaining an ending inventory of 15 percent of the following month's budgeted sales. At the beginning of October, Rolan had 10,000 units in inventory.
• Each unit of output requires 4 kilograms of direct material. To guard against stockouts of raw materials, the company has a policy of maintaining a raw materials inventory of 20 percent of the following month's production. At the beginning of October, Rolan has 26,000 kilograms of direct materials on hand. Each kilogram of direct materials costs $0.50.
• Each unit of output requires 0.2 hours (12 minutes) of direct labour and employees are paid a standard rate of $18 per hour
• Rolan applies overhead using a variable rate of $12 per direct labour hour. The fixed overhead is $71,000 per month. Of that amount, $20,000 are non-cash costs, such as depreciation on assets.
• Rolan has both fixed and variable components to the selling and administrative expenses. Accountants at Rolan estimate that the variable selling and administrative expenses are $1.00 per unit sold. Fixed selling and administrative expenses are $140,000 per month, $20,000 are non-cash costs, such as depreciation on assets.
• Fifty percent of sales are made in cash. The remaining 50% of sales are made on account. The company collects 60% of sales made on account in the month of the sale, 20% in the month following the sale, and 15% in the second month following the sale. Rolan Company had total sales of $672,000 in August and $588,000 in September.
• Rolan pays $0.50 per kilogram of direct materials. The company pays of half of its purchases in the month of the purchase and the remaining half in the month following the purchase. At the beginning of the quarter, Rolan owed its creditors $24,000 for purchases of direct materials.

1. Arrange a sales budget for the months of October, November, and December, and for the quarter in total.
2. Arrange a production budget for the months of October, November and December, and for the quarter-end. [Note: you might want to compute the production needs for January since you will need that information for subsection (C)]
3. Arrange the direct materials purchases budget for the months of October, November and December, and for the quarter-end.
4. Arrange the direct labour budget for the months of October, November and December, and for the quarter-end.
5. Arrange the overhead budget for the months of October, November and December, and for the quarter-end.
6. Arrange the ending finished goods inventory budget for the quarter ending December 31.
7. Prepare the accounts receivable collections schedule for the months of October, November and December.
8. Arrange the cash payments on accounts payable schedule for the months of October, November, and December.