Crydon, Inc., manufactures an advanced swim fi n for scuba divers. Management is now preparing detailed budgets for the third quarter, July through September, and has assembled the following information to assist in preparing the budget:
a. The Marketing Department has estimated sales as follows for the remainder of the year (in pairs of swim fi ns):
July . . . . . . . . . . . . . . 6,000
August . . . . . . . . . . . 7,000
September . . . . . . . . 5,000
October . . . . . . . . . . 4,000
November . . . . . . . . 3,000
December . . . . . . . . 3,000
The selling price of the swim fi ns is $50 per pair.
b. All sales are on account. Based on past experience, sales are expected to be collected in the following pattern:
40% in the month of sale
50% in the month following sale
The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will be $130,000.
c. The company maintains finished goods inventories equal to 10% of the following month’s sales. The inventory of finished goods on July 1 will be 600 pairs.
d. Each pair of swim fi ns requires 2 pounds of geico compound. To prevent shortages, the company would like the inventory of geico compound on hand at the end of each month to be equal to 20% of the following month’s production needs. The inventory of geico compound on hand on July 1 will be 2,440 pounds.
e. Geico compound costs $2.50 per pound. Crydon pays for 60% of its purchases in the month of purchase; the remainder is paid for in the following month. The accounts payable balance for geico compound purchases will be $11,400 on July 1.
1. Prepare a sales budget, by month and in total, for the third quarter. (Show your budget in both pairs of swim fi ns and dollars.) Also prepare a schedule of expected cash collections, by month and in total, for the third quarter.
2. Prepare a production budget for each of the months July through October.
3. Prepare a direct materials budget for geico compound, by month and in total, for the third quarter.
Also prepare a schedule of expected cash disbursements for geico compound, by month and in total, for the third quarter.