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Assignment 3 (2/57)
1. Favata Company has the following information:
Month
Budgeted Sales
June
$60,000
July
51,000
August
40,000
September
70,000
October
72,000
In addition, the cost of goods sold rate is 70% and the desired inventory level is 30% of
next month's cost of sales.
Required:
Prepare a purchases budget for July through September.
Answer:
July
Desired ending inventory $ 8,400
Plus COGS
35,700
Total needed
44,100
Less beginning inventory 10,710
Total purchases
$33,390

Aug
$14,700
28,000
42,700
8,400
$34,300

Sept
Total
$15,120 $15,120
49,000 112,700
64,120 127,820
14,700
10,710
$49,420 $117,110

2. Tiara Company has the following historical collection pattern for its credit sales:
70% collected in month of sale
15% collected in the first month after sale
10% collected in the second month after sale
4% collected in the third month after sale
1% uncollectible
Budgeted credit sales for the last six months of the year follow.

Required:
A. Calculate the estimated total cash collections during October.
B. Calculate the estimated total cash collections during the year's fourth quarter.
Answer:

3. Russell Company has the following projected account balances for June 30, 2011:
Accounts payable
$80,000
Accounts receivable 200,000
Depreciation, factory
48,000
Inventories (5/31 & 6/30)360,000
Direct materials used 400,000
Office salaries
160,000
Insurance, factory
8,000
Plant wages
280,000
Bonds payable
320,000

Sales
$1,600,000
Capital stock
800,000
Retained earnings
?
Cash
112,000
Equipment, net
480,000
Buildings, net
800,000
Utilities, factory
32,000
Selling expenses
120,000
Maintenance, factory 56,000

Required:
a. Prepare a budgeted income statement for June 2011
b. Prepare a budgeted balance sheet as of June 30, 2011.
Answer:
A.

Russell Company
Budgeted Income Statement
For the Month of June 2011

Sales
Cost of goods sold:
Materials used
Wages
Depreciation
Insurance
Maintenance
Utilities
Gross profit
Operating expenses:
Selling expenses
Office salaries
Net income
B.

$1,600,000
$400,000
280,000
48,000
8,000
56,000
32,000

824,000
776,000

$120,000
160,000

280,000
$496,000

Russell Company
Budgeted Balance Sheet
June 30, 2011

Assets:
Cash
$ 112,000
Accounts receivable 200,000
Inventories
360,000
Equipment, net
480,000
Buildings, net
800,000
Total
$1,952,000

Liabilities and Owners' Equity:


Accounts payable $ 80,000
Bonds payable
320,000
Capital stock
800,000
Retained earnings* 752,000
Total

$1,952,000

*$1,952,000 - ($80,000 + $320,000 + $800,000) = $752,000

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