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 $20 per pair.

July	6,300	October	4,300
August	7,300	November	3,300
September	5,300	December	3,300

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 $151,000.

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 567 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 5,112 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 $13,200 on July 1.

Required:

1a.

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

	July	August	September	Quarter - Total
Total budgeted sales

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1b.

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

Swanson, Inc.
Schedule of Expected Cash Collections
	July	August	September	Quarter - Total
Accounts receivable, beginning balance
July sales
August sales
September sales
Total cash collections

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2.

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

Swanson, Inc.
Production Budget
			July	August	September	October
Budgeted sales (pairs)
Total needs
Required production (pairs)

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3a.

Prepare a direct materials budget for geico compound, by month and in total, for the third quarter. (Do not round intermediate calculations.)

Swanson, Inc.
Direct Materials Budget
			July	August	September	Quarter - Total
Production needs (lbs.)
Total needs
Raw materials to be purchased
Cost of raw materials to be purchased

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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.)

Swanson, Inc.
Schedule of Expected Cash Disbursements
	July	August	September	Quarter - Total
Accounts payable, beginning balance
July purchases
August purchases
September purchases
Total cash payments

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