This case uses the data provided in Child$$s Play Company $($A$)$ and $($B$).$ Assume that the company

decided to follow Plan A for $2017.$ The CFO, Don Capp was assembling data in November $2016$

to prepare a budget for $2017.$

The sales department had indicated that the expected pattern of sales was as follows:

$20$ percent of the sales in the first quarter,

$30$ percent in each of the next two quarters, and

$20$ percent in the last quarter.

It was hard to figure out the sales by month $--$ the best assumption was that sales would be spread

out evenly by month within each quarter.

The promotional materials would be supplied to retailers in January.

The production department planned to maintain as the finished goods inventory enough inventory

for the following month$$s sales. However, the December $2016$ finished goods inventory was

expected to be only $20,000$ rattles, and the December $2017$ finished goods inventory was planned

to be equal to December $2017$s sales $($since January $2018$ expected sales was not yet known$).$

Don Capp also knew that several of the company$$s policies would continue into the next year:

a$.$ Child$$s Play generally sells to retailers on two month$$s credit. The beginning balance in

accounts receivable at the start of the year was expected to be $$400,000,$ of which half

would be collected in January $2017,$ and the remainder in February.

b$.$ Raw materials and packaging materials are purchased one month ahead of their use. The

company makes the purchase on one month$$s credit.

c$.$ All costs $($other than materials$)$ are paid for as incurred.

d$.$ The fixed manufacturing costs include $$80,000$ of depreciation expense. Fixed selling and

administrative costs include $$40,000$ of depreciation. The rest of the costs relate to rental

costs, property taxes and salaries and are paid monthly.

e$.$ The company generally maintains a cash balance of about $$10,000.$ If the balance drops

below that amount, the company will take a short term loan from the bank. $($Ignore

interest.$)$

 

 

Required:

$1.$ Prepare a production budget.

$2.$ Prepare a cash budget for each month for the first quarter of $2017.$ Ignore income taxes.