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Seatwork on Budgeting: 1.

Salem Company reported the following information for 2004: September October November Budgeted sales $280,000 $300,000 $320,000 Budgeted purchases $90,000 $120,000 $128,000 a.

December $360,000 $144,000

January $200,000 $88,000

All sales are on credit. Customer amounts on account are collected 60% in the month of sale and 40% in the following month. How much cash will Salem receive during November? From November sales: $320,000 x 60% = $192,000 From October sales: $300,000 x 40% = $120,000 Total = $192,000 + $120,000 = $312,000 How much is the November 30, 2004 budgeted Accounts Receivable? From November sales: $320,000 x 40% = $128,000

b.

2. Salem Company reported the following information for 2004: Budgeted sales Budgeted purchases September $280,000 $90,000 October $300,000 $120,000 November $320,000 $128,000 December $360,000 $144,000 January $200,000 $88,000

Cost of goods sold is 40% of sales. Salem purchases and pays for merchandise 70% in the month of acquisition and 30% in the following month. Accounts payable is used only for inventory acquisitions.

How much is the budgeted balance for Accounts Payable at November 30, 2004? From November purchases: $128,000 x 30% = $38,400 3. Salem Company reported the following information for 2004: Budgeted sales Budgeted purchases September $280,000 $90,000 October $300,000 $120,000 November $320,000 $128,000 December $360,000 $144,000 January $200,000 $88,000

Operating expenses are: Salaries, $60,000; Depreciation, $10,000; Rent, $20,000; Utilities, $11,000; Supplies are 1% of current months sales and are used during the month acquired. Operating expenses are paid during the month incurred. Accounts payable is used only for inventory acquisitions. How much is the budgeted amount of cash to be paid for operating expenses in November? $60,000 + $20,000 + $11,000 + (1%)($320,000) = $94,200 4. Key Co. manufactures beanies. The budgeted units to be produced and sold are below: Expected Production Expected Sales August 3,100 2,900 September 2,800 3,900 It takes 24 yards of yarn to produce a beanie. The company's policy to maintain yarn at the end of each month equal to 5% of the next month's production needs and to maintain a finished goods inventory at the end of each month equal to 20% of next month's anticipated production needs. The cost of yarn is $0.20 a yard. At August 1, 3,720 yards of yarn were on hand. Prepare a materials purchases budget for the August: Solution to Ex.4: Units to be produced Yards needed per unit Yards needed for production Add: Desired materials ending inventory (yards) (5%*2,800*24) Less: Beginning inventory on hand (yards) (5%*3,100*24) Yards needed to purchase Cost per yard 3,100 24 74,400 3,360 (3,720) 74,040 $0.20

Budgeted cost of purchases 5. Johnson Company budgeted the following information for 2006:

$14,808

May June July August Budgeted purchases $104,000 $110,000 $102,000 $100,000 Cost of goods sold is 40% of sales. Accounts payable is used only for inventory acquisitions. Johnson purchases and pays for merchandise 60% in the month of acquisition and 40% in the following month.

Selling and administrative expenses are budgeted at $40,000 for May and are expected to increase 5% per month. They are paid during the month of acquisition. In addition, budgeted depreciation is $10,000 per month. Johnson pays $4,500 per month for its 6% note payable and interest. Income taxes are $38,400 for July and are paid in the month incurred. How much are the budgeted cash disbursements for July? Solution to Ex.5: Cash disbursements: Cash paid for July purchases (60%*$102,000) Cash paid for June purchases (40%*$110,000) Cash paid for July selling and admin ($40,000*1.05*1.05) Cash paid for note payment and interest Cash paid for income taxes Total cash disbursements $61,200 44,000 44,100 4,500 38,400 $192,200

6. AlCos sales are all on account to customers. The companys collection pattern is: 70% collected in the month of sale; 25% collected in the month following sale; and the remaining 5% is uncollectible. The accounts receivable balance on March 31 was $30,000, all of which was collectible. The cash balance at the beginning of April was $21,000. Forecasted sales information follows: Forecasted sales for January $110,000 Forecasted sales for February 130,000 Forecasted sales for March 90,000 Forecasted sales for April 100,000 Forecasted sales for May 120,000 Determine the amount of cash to be collected during the month of March. Solution to Ex. 6: Cash collected from February sales: $130,000 x 25% = $32,500 Cash collected from March sales: $90,000 x 70% = 63,000 Cash to be collected during March $95,500 7. The budget components for McLeod Company for the quarter ended June 30 appear below. McLeod sells trash cans for $12 each. Budgeted sales of trash cans for the next four months are: April 20,000 units May 50,000 units June 30,000 units July 25,000 units McLeod desires to have trash cans on hand at the end of each month equal to 20 percent of the following months budgeted sales in units. On March 31, McLeod had 4,000 completed units on hand. The number of trashcans to be produced in April and May are 26,000 and 46,000, respectively. Seven pounds of plastic are required for each trash can. At the end of each month, McLeod desires to have 10 percent of the following months production material needs on hand. At March 31, McLeod had 18,200 pounds of plastic on hand. The material used in production costs $0.60 per pound. Each trashcan produced requires 0.10 hours of direct labor. How many trashcans should McLeod produce during the month of June? Solution to Ex.7: Units needed for June sales + Desired ending inventory (20%*25,000) Total units needed Less beginning inventory on hand (20%*30,000) Units to be produced during June 30,000 5,000 35,000 (6,000) 29,000

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