Practice question:

Olson Company has the following data for the first five months of 2017

Month

Budgeted sales (units)

Prices ($)

January

15000

40

February

18,000

40

March

25,000

40

April

10,000

40

May

8,000

40

The company policy is to keep ending finished goods at the end of each month of about

20% of the next month budgeted sales. At December 31, 2016 finished goods inventory

was 4,500 units. The production department estimates that each produced unit need 5

grams of raw materials with a cost of $ 1 per pound. It is the company policy to have an

inventory at the end of each month of about 5% of the production needs of the raw

materials for next month. At January 1

st

(December 31) the company has 2000 pounds

of raw materials.

Other information

1.

Cash collections for Jan, Feb, and March are expected to be 384,000, 574,000,

and 920,000 respectively.

2.

Cash payment for salaries are expected to be 200,000 for the Jan, 300, 0000 for

Feb and 500,000 for March

3.

Other administrative expenses payment 100,000 for Jan, 200,000 for Feb and

400,000 for March.

4.

Cash Equipment purchases are expected to be 100,000 during Jan 2017.

5.

Raw materials purchases are expected to be 450,000, 500,000 and 650,000 for

Jan-March 2017.

6.

The company policy is to maintain the cash balance at the end of each month

with amount of 50,000.

7.

The cash balance for Dec 31, 2016 was 60,000. Given that if the company

cannot meet the expected cash at the end of the month, the borrowing policy

may take place and the payment of the loans will be in the following month.

Required:

1.

Prepare the following budgets:

2.

Sales

3.

Production

4.

cash

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