Water Sport Inc. manufactures a small personal water tube used for children learning to swim. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist: a. The Marketing Department has estimated sales as follows for the remainder of the year (number of water tubes): July August September 6,900 5,400 4,400 October November December 3,300 2,900 2,400 The selling price of the water tubes is $60. b. All sales are on account. Based on past experience, sales are expected to be collected in the following pattern: 50% 45% 5% in the month of sale in the month following sale uncollectible The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will be $162,000. c. The company maintains finished goods inventories equal to 20% of the following month's sales. The inventory of finished goods on July 1 will be 1,380 units. d. Each water tube requires 3 kilograms of synthetic polyisoprene rubber compound. To prevent shortages, the company would like the inventory of synthetic rubber compound on hand at the end of each month to be equal to 20% of the following month's production The inventory of synthetic rubber compound on hand on July 1 will be 3,960 kilograms. e. The synthetic rubber compound costs $2.50 per kilogram. Water Sport pays for 70% of its purchases in the month of purchase; the remainder is paid for in the following month. The accounts payable balance for synthetic rubber compound purchases will be $12,600 on July 1. 3. Prepare a direct materials purchases budget for synthetic rubber compound, by month and in total, for the third quarter. Also prepare a schedule of expected cash disbursements for synthetic rubber compound, by month and in total, for the third quarter. Quarter 15,980 Direct materials purchases budget July August September Required production (units) 6,600 5,200 4,180 Material D236 needed per unit (kgs.) 3 3 3 Production needs (kgs.) 19,800 15.600 12,540 Add: Desired ending inventory (kgs.) 3,120 2,508 644 X Total Material D236 needs 22,920 18,108 13,184 Less: Beginning inventory (kgs.) 3,960 3,120 2,508 Raw materials to be purchased 18,960 14,988 10.676 Cost of raw materials to be purchased at $2.50 per kg $ 47.400$ 37,470 $ 26,690 X *Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted. 3 47,940 6,272 54,212 54.212 Schedule of expected cash disbursement July August September Accounts payable, beginning balance $ 12,600 $ 0 $ 0 $ July purchases: 33,180 14,220 August purchases: 26,229 11,241 September purchases 18,683 > Total cash disbursements $ 45,780 40,449 $ 29,924 $ *Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted. Quarter 12,600 47,400 37,470 18,683 X 116,153 $
