Freese, Inc. is in the process of preparing the fourth quarter budget for 2013, and the following data have been assembled:

The company sells a single product at a selling price of $60 per unit.The estimated sales volume for the

six months is as follows:

September

October

November

December

January

Units

13,000

12,000

14,000

20,000

9,000

All sales are on account.The company's collection experience has been that 32% of a month's sales are

collected in the month of sale, 64% in the month following the sale, and 4% are uncollectible.According to

the budget, the net realizable value of accounts receivable (i.e. accounts receivable less allowance for

uncollectible accounts) is expected to be $499,200 on September 30, 2013.

Management's policy is to maintain ending finished goods inventory each month at a level equal to 40% of the

next month's budgeted sales.The finished goods inventory on September 30, 2013, is expected to be 4,800 units.

To make one unit of finished product, 5 pounds of raw material are required.Management's policy is to have

enough materials on hand at the end of each month to equal 30% of the next month's estimated usage.The raw

materials inventory is expected to be 19,200 pounds on September 30, 2013.

The cost per pound of material is $4, and 70% of all purchases are paid for in the month of purchase; the

remainder is paid in the following month.The accounts payable for raw material purchases is expected

to be $75,960 on September 30, 2013.

Please proceed to the "Analysis" worksheet and complete the basic problem requirements.Complete the problem

requirements by entering appropriate amounts or formulas in shaded worksheet cells:

a. sales budget in units and dollars, by month and in total, for the fourth quarter (October, November,

and December) of 2013.

b. schedule of cash collections from sales, by month and in total, for the fourth quarter of 2013.

c. production budget in units, by month and in total, for the fourth quarter of 2013.

d. materials purchases budget in pounds, by month and in total, for the fourth quarter of 2013.

e. schedule of cash payments for materials, by month and in total, for the fourth quarter of 2013.

ACCOUNTING: What the Numbers Mean, 10e

Chapter 14Problem 14.24

Name:

Enter Name

Complete the Modeling:

a.Sales Budget

Quarter Ended December 31, 2013

September

October

November

December

Total

January

February

Expected sales in units:

Selling price per unit:

Total Sales:

b.Cash Collections from:

Quarter Ended December 31, 2013

Sales

% Collected

October

November

December

Total

September sales:

$ -

$ -

October sales:

$ -

-

October sales:

$ -

-

November sales:

$ -

-

November sales:

$ -

-

December sales:

$ -

-

Total cash collections:

$ -

$ -

$ -

$ -

c.Production Budget

Quarter Ended December 31, 2013

Finished Goods

% Budgeted

October

November

December

Total

January

Beginning Inventory:

4,800

Units to be produced:

(4,800)

-

-

-

-

Goods available for sale:

-

-

-

-

-

Desired ending inventory:

Quantity of goods sold:

-

-

-

-

-

d.Materials Purchases Budget

October

November

December

Total

January

Units to be produced:

(4,800)

-

-

-

-

Pounds required for each unit:

Total pounds used in production:

Quarter Ended December 31, 2013

Raw Materials

% Budgeted

October

November

December

Total

Beginning Inventory:

19,200

Purchases of materials:

(19,200)

-

-

-

Materials available for use:

-

-

-

-

Desired ending inventory:

Total pounds used in production:

-

-

-

-

e.Cash Payments for:

October

November

December

Total

Purchases of materials:

(19,200)

-

-

-

Cost per pound of raw material:

Total cost of raw material purchases:

Quarter Ended December 31, 2013

Purchases

% Paid

October

November

December

Total

September Net A/P:

$ 75,960

$ 75,960

October purchases:

$ -

-

October purchases:

$ -

-

November purchases:

$ -

-

November purchases:

$ -

-

December purchases:

$ -

-

Total cash payments:

$ 75,960

$ -

$ -

$ 75,960

Assume that Freese, Inc. decided that because of strong economic conditions in general, a 10% increase in the

expected number of units to be sold each month was realistic.Explain the effect, in general, on each of the budgets

presented of a 10% increase in the number of units sold.

Assuming that the number of units sold would not change, explain the effect on the budgets presented of a 5%

increase in the selling price of the product.How does this price change effect differ from the sales volume

effect you described above?

The purchasing manager is evaluating an alternative supplier that would provide a slightly lower grade of raw

material at a savings from the current price of $4 per pound.The new price would be at $3.50 per pound but

the product would now require six pounds of the lower grade of raw material to produce the same number of

good finished units as currently achieved.Would you recommend the change to the new supplier?What if the

new price was to be $3.00?How about a price of $3.285307?Explain your answers.