Question

Production and Purchases Budgets
At the beginning of October, Comfy Cushions had 1,600 cushions and 10,500 pounds of raw materials on hand. Budgeted sales for the next three months are:

Month	Sales
October	8,000 cushions
November	10,000 cushions
December	13,000 cushions

Comfy Cushions wants to have sufficient raw materials on hand at the end of each month to meet 25 percent of the following month's production requirements and sufficient cushions on hand at the end of each month to meet 20 percent of the following month's budgeted sales. Five pounds of raw materials, at a standard cost of $0.90 per pound, are required to produce each cushion.

Required
a. Prepare a production budget for October and November.
Do not use a negative sign with your answers.

Comfy Cushions
Production Budget
For the Months of October and November
	October	November	December
Unit Sales
Desired ending inventory
Finished goods requirements
Less beginning inventory
Production requirements

b. Prepare a purchases budget in units and dollars for October.
Do not use a negative sign with your answers.

Comfy Cushions
Purchases Budget
For the Month of October
		October	November
Production requirements
Desired ending inventory
Raw materials requirements
Less beginning inventory
Purchase requirements (units)
Purchase requirements (in dollars)

Cash Disbursement
Timber Company is in the process of preparing its budget for next year. Cost of goods sold has been estimated at 70 percent of sales. Lumber purchases and payments are to be made during the month preceding the month of sale. Wages are estimated at 15 percent of sales and are paid during the month of sale. Other operating costs amounting to 10 percent of sales are to be paid in the month following the month of sale. Additionally, a monthly lease payment of $14,000 is paid for computer services. Sales revenue is forecast as follows

Month	Sales Revenue
February	$170,000
March	210,000
April	220,000
May	260,000
June	240,000
July	280,000

Required
Prepare a schedule of cash disbursements for April, May, and June.
Do not use a negative sign with your answers.

Timber Company
Schedule of Cash Disbursements
April, May, and June
	April	May	June
Lumbers purchases
Wages
Operating expenses
Lease payment
Total disbursements

Answer 1

SOLUTION

Question - 1

(A) Production Budget

	October	November	December
Unit Sales	8,000	10,000	13,000
Desired ending inventory	2,000	2,600
Finished goods requirements	10,000	12,600
Less beginning inventory	(1,600)	(2,000)
Production requirements	8,400	10,600

Desired ending inventory = 20% * Next months sales

October = 20% * 10,000 = 2,000

November = 20% * 13,000 = 2,600

(B) Purchases Budget

	October	November
Production requirements (8,400*5) (10,600*5)	42,000	53,000
Desired ending inventory	13,250
Raw materials requirements	55,250
Less beginning inventory	(10,500)
Purchase requirements (units)	44,750
Purchase requirements (in dollars) (@$0.90)	40,275

* As per HOMEWORKLIB RULES, I have answered first question.