Very Smooth Inc. manufactures mats that are sold to wholesalers and retailers and which are ultimately sold to homeowners and business owners. Management is preparing detailed budgets for the first quarter, January to March, and has put together the following information to assist. 1. The Marketing Department has estimated sales as follows for the first six months of the year. January February March 6,500 April 5,000 May 4,000 June 3,000 2,500 2,000 The selling price of each mat is $60. 2. All sales are on account. Based on past experience, sales are expected to be collected in the following pattern. 50% in the month of sales 45% in the month following sale 5% uncollectible The beginning accounts receivable balance (excluding the uncollectible amounts) on January 1 will be $160,000. 3. The company maintains finished goods inventories equal to 20% of the following month's sales. The inventory of finished goods on January 1 will be 1,300 mats. 4. Each mat requires 3 kilograms of rubber. To prevent shortages, the company would like the inventory of rubber on hand at the end of each month to be equal to 20% of the following month's production needs. The inventory of rubber on hand at January 1 will be 3,720 kilograms. 5. The rubber costs $3.50 per kilogram. Very Smooth pays for 70% of its purchases in the month of purchase and the remainder is paid in the following month. The accounts payable balance for rubber purchases will be $11,400 on January 1. Page 1 of 2 Required: a) Explain why organizations budget and describe the processes they use to create budgets. b) Prepare the master budget the first quarter for Very Smooth Inc. The following budgets are required: i. Sales budget, by month and in total ii. Production budget, by month and in total iii. Direct materials purchases budget, by month and in total iv. Schedule of expected cash collections, by month and in total Schedule of expected cash disbursements, by month and in total V