Question

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PROBLEM 7-20B Integration of Sales, Production, and Direct Materials Budgets [LO2, LO3, LO4] CHECK FIGURE (1) August collections: $71,838 (3b) August payments: $59,572 Swanson, Inc., manufactures an advanced swim fin 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 fins). The selling price of the swim fins is $13 per pair July August 3,600 6,600 November 2,600 September 4,600 December 2,600 5,600 October b. All sales are on account. Based on past experience, sales are expected to be collected in the following pattern 43% in the month of sale 48% in the month following sale 996 uncollectible. The beginning accounts receivable balance (excluding uncollectible amounts) on July 1 will be $130,000 C. The company maintains finished goods inventories equal to 9% of the following month's sales. The inventory of finished goods on July 1 will be 504 pairs. d. Each pair of swim fins requires 4 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 4,552 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 $11,800 on July 1 Required 1. Prepare a sales budget, by month and in total, for the third quarter. (Show your budget in both pairs of swim fins and dollars.) Aise-prepere e-sehedule of expeeted cesh-eolleetions, by 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

Answer 1

Sales Budget
	July	August	September	Total
Estimated Sales During the Month (in units) (A)	5600	6600	4600	16800
Selling price per thousand unit (B)	13	13	13
Estimated Sales (A*B) ($)	72800	85800	59800	218400

Production Budget (In units)
	July	August	September	October
Sales During the Month ($) (A)	5600	6600	4600	3600
Add: Closing Stock ( 9 % of sales value)	594	414	324	234
Less: Opening Stock	504	594	414	324
Required Purchase (in units)	5690	6420	4510	3510

Direct Material Budget
	January	February	March
Current month requirement	5690	6420	4510
Add: Closing Stock
20 % of next month requirement	1284	902	3324
	(6420*20%)	(4510*20%)	(3510*20%)
Less: Opening Stock	4552	1284	90

   2422 6038 6932 Notes:

1. Closing stock of previous month will be opening stock of next month