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1 .. _________________ M_a_na_g_e_r_ia_l_A_cc_o_""tl"g ''IA'"'9'" Foorth Ed;dM I/ Master Budgeting Additional student resources are available with Connect. a connect EXERCISE 9-1 Schedule of Expected Cash Collections [L09-2] Silver Company makes a product that is very popular as a Mother's Day gift. Thus, peak sales occur in May of each year, as shown in the company's sales budget for the second quarter given below: Budgeted sales (all on account) . . . . . . . . $300,000 $500,000 $200,000 $1,000,000 From past experience, the company has learned that 20% of a month's sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000. Required: 1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter. 2. Assume that the company will prepare a budgeted balance sheet as of June 30. Compute the accounts receivable as of that date. EXERCISE 9-2 Production Budget [L09-3] Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows: April .......................... . May ........................... . June ................... .. July .... ,....................... . The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 10% of the following month's sales. The inventory at the end of March was 5,000 units. Required: Prepare a production budget for the second quarter; in your budget, show the number of units to be produced each month and for the quarter in total. EXERCISE 9-3 Direct Materials Budget [L09-4] Three grams of musk oil are required for each bottle of Mink Caress, a very popular perfume made by a small company in western Siberia. The cost of the musk oil is $1.50 per gram. Budgeted production of Mink Caress is given below by quarters for Year 2 and for the first quarter of Year 3: Musk oil has become so popular as a perfume ingredient that it has become necessary to carry large inventories as a precaution against stock-outs. For this reason, the inventory of musk oil at the end of a quarter must be equal to 20% of the following quarter's production needs. Some 36,000 grams of musk oil will be on hand to start the first quarter of Year 2. Required: Prepare a direct materials budget for musk oil, by quarter and in total, for Year 2. At the bottom of your budget, show the amount of purchases for each quarter and for the year in total. Exercises 417