Tecknik Corporation has the following budgeted sales for the selected six-month

Question

Tecknik Corporation has the following budgeted sales for the selected six-month period:

January unit sales is 15,000 , February 20,000, March 35,000, April 25,000, May 30,000, and June 20,000

There were 7,500 units of finished goods in inventory at the beginning of January. Plans are to have an inventory of finished product equal to 20 percent of the unit sales for the next month.

Three pounds of materials are required for each unit produced. Each pound of material costs $20. Inventory levels for materials equal 30 percent of the needs for the next month. Materials inventory on January 1 was 5,000 pounds.

The sales price per unit is $100. 10% of the customers usually pay at the time of sale. 35% of the customers pay within the first month of the sale, and the rest of the customers pay within the second month following the sale.

5% of the purchases are paid at the time of sale. 80% of the purchases are paid within the first month of purchase, and the rest paid the second month following the purchase.

Required:

a.Prepare production budgets in units for February, March, and April. (4 points)

b.Prepare a purchases budget in pounds and dollars for February, March, and April. (4 points)

c.Prepare a Cash Collections Budget February, March, and April. (4 points)

d.Prepare a Cash Disbursements Budget February, March, and April. (4 points)

Explanation / Answer

Production Budget PARTICULARS January FEBRUARY MARCH APRIL MAY Sales 15000 20000 35000 25000 30000 Add: Opening Inventory 7500 4000 7000 5000 6000 Less: Closing Inventory 4000 7000 5000 6000 4000 Finished goods produced 18500 17000 37000 24000 32000 Note: As per the question assumed that 20% next months sale is the closing invenotry of previous month. Purchases budget PARTICULARS January FEBRUARY MARCH APRIL MAY Production units (A) 18500 17000 37000 24000 32000 Materials Required for Production (A x 3) 55500 51000 111000 72000 96000 Less : Opening Inventory 5000 15300 33300 21600 28800 Add : Closing Inventory 15300 33300 21600 28800 Total Pounds of material purchased 65800 69000 99300 79200 Cost per pound $20 $20 $20 $20 Cost of Materials $1,316,000 $1,380,000 $1,986,000 $1,584,000 Note : Purchases = Cost of goods + Closing stock -Opening stock As per the question assumed that 30% next months sale is the closing invenotry of materials for previous month. Cash collections Budget PARTICULARS January FEBRUARY MARCH APRIL MAY Sales Units 15000 20000 35000 25000 30000 Sales value (@$100) 1500000 2000000 3500000 2500000 3000000 Cash received from customers (10%) 150000 200000 350000 250000 300000 Cash in 1st month of Sale (35%) 0 525000 700000 1225000 875000 Cash received in 2nd month f sale (55%) 0 0 825000 1100000 1925000 Cash collected Total 150000 725000 1875000 2575000 3100000 Cash disbursements Budget PARTICULARS January FEBRUARY MARCH APRIL MAY Purchases Value $1,316,000 $1,380,000 $1,986,000 $1,584,000 Cash paid at the purchases time (5%) 65800 69000 99300 79200 Cash paid in 1st month(80%) 1052800 1104000 1588800 1267200 Cash paid in 2nd month (15%) 197400 207000 297900 Cash disbursements Budget 65800 1121800 1400700 1875000 1565100

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