Problem 7-20B Integration of Sales, Production, and Direct Materials Budgets [LO7-2, LO7-3, LO7-4]

Swanson, Inc., manufactures an advanced swim fin for scuba divers. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist in preparing the budget:

a.The Marketing Department has estimated sales as follows for the remainder of the year (in pairs of swim fins). The selling price of the swim fins is $27 per pair.

July 7,000 October 5,000

August 8,000 November 4,000

September 6,000 December 4,000

b.All sales are on account. Based on past experience, sales are expected to be collected in the following pattern:

43% in the month of sale

48% in the month following sale

9% uncollectible

The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will be $172,000.

c.

The company maintains finished goods inventories equal to 9% of the following months sales. The inventory of finished goods on July 1 will be 630 pairs.

d.

Each pair of swim fins requires 4 pounds of geico compound. To prevent shortages, the company would like the inventory of geico compound on hand at the end of each month to be equal to 20% of the following months production needs. The inventory of geico compound on hand on July 1 will be 5,672 pounds.

e.

Geico compound costs $2.50 per pound. Crydon pays for 60% of its purchases in the month of purchase; the remainder is paid for in the following month. The accounts payable balance for geico compound purchases will be $14,600 on July 1.

Required:

1a.

Prepare a sales budget, by month and in total, for the third quarter.

Total budget sales:

July:

August:

September:

Quarter-Total:

1b. Prepare a schedule of expected cash collections, by month and in total, for the third quarter. (Do not round intermediate calculations.) JULY AUGUST SEPTEMBER QUARTER-TOTAL

Accounts receivable, beginning balance:

July Sales:

August Sales:

September Sales:

Total cash collections:

2.	Prepare a production budget for each of the months July through October.

JULY AUGUST SEPTEMBER QUARTER-TOTAL

Budgeted Sales (pairs)

Add: Ending inventory

Total needs

Less: Beginning Inventory

Required production (pairs)

3a.Prepare a direct materials budget for geico compound, by month and in total, for the third quarter. (Do not round intermediate calculations.) JULY AUGUST SEPTEMBER QUARTER-TOTAL

Production needs (lbs.) :

Add: ending inventory:

Total needs:

Less: Beginning Inventory:

Raw materials to be purchased:

Cost of raw materials to be purchased:

3b.Prepare a schedule of expected cash disbursements for geico compound, by month and in total, for the third quarter. (Do not round intermediate calculations.)

JULY AUGUST SEPTEMBER QUARTER-TOTAL

Accounts payable, beginning balance:

July purchases:

August purchases:

September purchases:

Total cash payments: