Case #1

Sienna Corporation is preparing budgets for the upcoming quarter ending June 30. Budgeted sales (in units) for the next five months are:

April	30,000
May	90,000
June	75,000
July	51,000
August	52,500

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

• The company produces professional quality bowls that sell for $31.50 per unit.
• To guard against inventory stockouts, the company has a policy of maintaining an ending inventory of 18 percent of the following months budgeted sales. At the beginning of April, Sienna Corp. had 15,000 units in inventory.
• Each unit of output requires 2 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 months production. At the beginning of April, Sienna Corp. has 32,000 kilograms of direct materials on hand. Each kilogram of direct materials costs $1.00.
• Each unit of output requires 0.2 hours (12 minutes) of direct labour and employees are paid a standard rate of $22 per hour
• Sienna Corp. applies overhead using a variable rate of $15 per direct labour hour. The fixed overhead is $94,590 per month. Of that amount, $20,000 are non-cash costs, such as depreciation on assets.
• Sienna Corp. has both fixed and variable components to the selling and administrative expenses. Accountants at Sienna Corp. estimate that the variable selling and administrative expenses are $0.50 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. Sienna Corporation had total sales of $882,000 in February and $756,000 in March
• Sienna Corporation pays $1.00 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, Sienna Corporation owed its creditors $42,400 for purchases of direct materials.

Required:

1. Prepare the overhead budget for the months of April, May and June, and for the quarter-end.

2. Prepare the ending finished goods inventory budget for the quarter ending June 30.

3. Prepare the accounts receivable collections schedule for the months of April, May and June.

4. Prepare the cash payments on accounts payable schedule for the months of April, May, and June.