Team exercise 5

Patel Instruments Company has the following sales budget for the first three months of the current year:

Month	Sales Revenue
January	$900,000
February	225,000
March	660,000

Historically, the following trend has been established regarding cash collection of sales:

65 percent in month of sale

25 percent in month following sale

8 percent in second month following sale

2 percent uncollectible

The company allows a 2 percent cash discount for payments made by customers during the month of the sale. November and December sales were $150,000 and $300,000, respectively.

Required: Prepare a schedule of budgeted cash collections from sales for January, February, and March.

Winter Ski Shop specializes in selling ski boots and maintains sales that are extremely seasonal. For the year 2016, the company is trying to decide whether to establish a sales budget based on average sales or on sales estimated by quarter. The unit sales for 2016 are expected to be 12 percent lower than 2015 sales. Unit sales by quarter for 2015 are as follows:

(In Units)	Spring Quarter	Summer Quarter	Fall Quarter	Winter Quarter	Year Total
Mens Boots	350	375	750	800	2,275
Womens Boots	225	250	500	550	1,525
Childrens Boots	150	110	250	275	785
Total	725	735	1,500	1,625	4,585

Mens ski boots sell for $350, womens sell for $340, and childrens sell for $230.

Required: Assuming a 12 percent decrease in sales, prepare a sales budget for each quarter of 2016 using:

a. Average quarterly sales

b. Actual quarterly sales

c. Identify the advantage of using each method

Budgeted sales of gloves for Snug Fit Hands for the first six months of the year 2014 are as follows:

Months	Unit Sales
January	650,000
February	775,000
March	700,000
April	680,000
May	1,125,000
June	1,250,000

The beginning inventory for 2015 is 250,000 units. The budgeted inventory at the end of a month is 30 percent of units to be sold the following month. Purchase price per unit is $7 per unit.

Required: Prepare a purchases budget in units and dollars for each month, January through May.

Helen Corporation has the following budgeted sales for the selected four-month period:

Month	Unit Sales
October	60,000
November	115,000
December	88,000
January	107,500

There were 38,000 units of finished goods in inventory at the beginning of October. Plans are to have an inventory of finished product equal to 25 percent of the unit sales for the next month.

Five pounds of a single raw material are required for each unit produced. Each pound of material costs $10. Plans are to have inventory levels for materials equal to 30 percent of the amount of materials needed to satisfy next month's production and 168,000 pounds of raw material on hand at the end of December. Materials inventory on October 1 was 120,000 pounds.

Required:

a. Prepare a production budget in units for October, November, and December.

b. Prepare a purchase budget in pounds and dollars for October, November, and December.