Problem 1 The master budget components for Land Company for the month ended June

ID: 2370353 • Letter: P

Question

Problem 1

The master budget components for Land Company for the month ended June 30 appear below. Land Company produces and sells rakes for $10 each. Budgeted sales and cash disbursements for the next five months are:

Budgeted sales

Budgeted cash disbursements

April

20,000 units

$301,000

May

50,000 units

$362,000

June

30,000 units

$356,000

July

25,000 units

$332,000

August

15,000 units

$315,000

Additional information follows:

All sales are on account. The company

Budgeted sales

Budgeted cash disbursements

April

20,000 units

$301,000

May

50,000 units

$362,000

June

30,000 units

$356,000

July

25,000 units

$332,000

August

15,000 units

$315,000

Explanation / Answer

A. Determine the amount of cash collections Land expects to receive during themonth ending June 30.

From April Sales: 20,000 x $10 x 5% = $10,000

From May Sales: 50,000 x $10 x 25% = $125,000

From June Sales: 30,000 x $10 x 70% = $210,000

Total = $345,000

B. In good form, prepare a production budget in units forthe month ending June 30.

Units needed for sales for June

30,000

Add 6-30 ending inventory needed: 20%*25,000

5,000

Less beginning inventory atJune 1: 20%*30,000

(6,000)

Finished units to be produced

29,000

C. Prepare a materials purchases budget forthe month ending June 30.

Budgeted materials needed for production

145,000

+Ending inventory needed (23,000*5 pounds*10%)

11,500

Less RM beginning inventory (29,000*5*10%)

(14,500)

Total pounds of material needed

142,000

Cost per pound

$0.40

Cost of materials to be purchased

$56,800

**July sales expected

25,000

+July 31 ending FG inventory (20%*15,000)

3,000

- July beginning FG inventory (20%*25,000)

(5,000)

Expected July production

23,000