Version 5 The data below pertains to the third quarter of Lulu Company which manufactures toys. Below is the estimated sales (in units): July August September October November December 66,000 76,000 82,000 90.000 70,000 30,000 a. The selling price of each toy is $10.00 per unit. b. All sales are on account. Based on past experience, sales are collected in the following pattern: Month of sale Month following sale Uncollectible 40% 55% 5% c. Sales for June totaled $170,000. d. The company maintains finished goods inventories equal to 20% of the following month's sales. e. Each toy requires 4 pounds of raw materials. f. The company requires that the ending inventory of raw materials be equal to 15% of the following month's production needs. g. The raw material costs $5.00 per pound. h. 50% of a month's purchases of raw materials is paid for in the month of purchase; the remainder is paid for in the following month. i. The accounts payable on June 30 will be $127,000. 1 Cover Page and formatting 1. Cover page 2. Table of contents 3. Referencing 4. Formatting Total (2 marks) (2 marks) (3 marks) (3 marks) (10 marks) Part 1 Required: Prepare: a. Prepare a sales budget, by month and in total, for the third quarter. (3 marks) b. Prepare a schedule of expected cash collections, by month and in total, for the third quarter. (15 marks) c. Prepare a production budget by month and in total for the quarter. (10 marks) d. Prepare a direct materials budget, by month and in total, for the quarter. (12 marks) e. Prepare a schedule of expected cash disbursements, by month and in total, for the quarter. (15 marks) Total of Part 1 155 marks) 2 Part II Question One (15 Marks) Winter Products is a wholesale distributor of snow ploughs in Australia. Thus, peak sales occur in August of each year as shown in the company's sales budget for the third quarter, given below: Jul Aug Sept Budgeted Sales (All on account) S 500,000 $ 650,000 $500,000 From past experience, the company has learned that 30% of a month's sales are collected in the month of sale, another 60% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. May sales totaled $450,000, and June sales totaled $550,000. Required: Prepare a schedule of expected cash collections from sales by month. (July, August, and September) Question Two (20 Marks) Abu Dhabi Products, Inc., is a merchandising company that sells school supplies. The company is planning its cash needs for the third quarter. In the past, Abu Dhabi Products had to borrow money during the third quarter to support peak sales of back-to-school materials, which occurs during August. The following information has been assembled to assist in preparing a cash budget for the quarter: a. The Total cash collections and disbursement for purchases are as follows (All amounts are in dollars): Jul Aug Sept Total Cash collection 70,000 47,760 59,600 Total Cash disbursed for purchases 95,000 31,250 30,375 Selling and administrative expenses will be incurred as follows: Selling expenses 7.200 9,700 Administrative expenses 5,600 7,200 6,100 b. Land costing 54,500 will be purchased in July. 8,500 3 c. Dividends of $5,000 will be declared and paid in September. d. The cash balance on July 1" is $9,500; the company must maintain a cash balance of at least $10,000 at the end of each month. e. The company has an agreement with a local bank that allows it to borrow in increments of S1,000 at the beginning of each month. The interest rate on these loans is 12% per year. The company would repay the loan plus accumulated interest at the end of the quarter. Required: Prepare a cash budget for July, August and September 1. A schedule of expected cash collections 2. A cash budget (15 marks) (20 marks) Total of Part II Grand Total (35 marks) (100 Marks) 4
