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Assignment 3 (2/57)

1. Favata Company has the following information: Month Budgeted SalesJune $60,000July 51,000August 40,000September 70,000October 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 Aug Sept TotalDesired ending inventory $ 8,400 $14,700 $15,120 $15,120Plus COGS 35,700 28,000 49,000 112,700Total needed 44,100 42,700 64,120 127,820Less beginning inventory 10,710 8,400 14,700 10,710Total purchases $33,390 $34,300 $49,420 $117,110

2. Tiara Company has the following historical collection pattern for its credit sales:70% collected in month of sale15% collected in the first month after sale10% collected in the second month after sale4% collected in the third month after sale1% uncollectibleBudgeted 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 Sales $1,600,000Accounts receivable 200,000 Capital stock 800,000Depreciation, factory 48,000 Retained earnings ?Inventories (5/31 & 6/30)360,000 Cash 112,000Direct materials used 400,000 Equipment, net 480,000Office salaries 160,000 Buildings, net 800,000Insurance, factory 8,000 Utilities, factory 32,000Plant wages 280,000 Selling expenses 120,000Bonds payable 320,000 Maintenance, factory 56,000

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

Answer: A. Russell Company

Budgeted Income StatementFor the Month of June 2011

Sales $1,600,000Cost of goods sold:

Materials used $400,000Wages 280,000Depreciation 48,000Insurance 8,000Maintenance 56,000Utilities 32,000 824,000

Gross profit 776,000Operating expenses:

Selling expenses $120,000Office salaries 160,000 280,000

Net income $496,000

B. Russell CompanyBudgeted Balance Sheet

June 30, 2011

Assets: Liabilities and Owners' Equity:Cash $ 112,000 Accounts payable $ 80,000Accounts receivable 200,000 Bonds payable 320,000Inventories 360,000 Capital stock 800,000Equipment, net 480,000 Retained earnings* 752,000Buildings, net 800,000Total $1,952,000 Total $1,952,000

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