Smithfield Company manufactures widgets. Smithfields sales budget shows monthly sales for the upcoming quarter as follows:

July 10,000 units

August 8,000 units

September 12,000 units

October 14,000 units

Each unit sells for $20.00. 80% of sales are on account. Smithfields collections on sales on account are expected as follows:

65% in the month of the sale

20% in the month following the month of sale

12% in the second month following the month of sale

3% uncollectible

Smithfields accounts receivable balance as of June 30 is $93,000 (net of expected bad debts which are reserved for) of which $30,000 represents uncollected May sales and $63,000 represents uncollected June sales. These amounts just represent what is collectible (uncollectible amounts have been written off).

Company policy is to have a finished goods inventory at the end of each month equal to 20% of the next months sales. Variable product costs are as follows:

DM (2 pounds of steel at $4 per pound) $8.00

DL (1/4 hour at $12 per hour) $3.00

Variable Overhead (50% of DL) $1.50

Ending inventory levels for raw materials should equal 40% of the production needs for the next month. Smithfield pays for 20% of direct material purchases during the month of purchase and the remaining 80% is paid during the following month. Other variable costs are incurred and paid during the month of production. The fixed operating costs total $10,000 a month (including depreciation of $3,000). Payments related to fixed overhead are made during the month incurred.

Raw Materials and Finished goods inventories at the beginning of July were in accordance with the companys inventory policy.

1. What were total sales for each of the following months?

1. May
2. June

2. What are the expected cash collections for each of the following months?

1. July
2. August

3. How many widgets does Smithfield expect to produce during the months of July, August and September?

4. What is the RM purchases budget for July and August (in pounds and dollars)?

5. Prepare a cash budget for August.