Chika Company manufactures and sells a product that has seasonal variations in demand, with peak sales coming in the third quarter. She has just completed her first year of business and is beginning to budget for Year 2.
The following information is what she has developed in order to finish her budget:
a. The company's product sells for $8 per unit. Budgeted sales for the next six quarters are as follows:
Budgeted sales in units: Qtr 1: 40,000 Qtr 2: 60,000 Qtr 3: 100,000 Qtr 4: 50,000 Year 3-Qtr 1: 70,000, Qtr 2: 80,000
b. Sales are collected in the following pattern. 75% in the quarter the sales are made, and the remaining 25% the following quarter. On January 1, Year 2, the company's balance sheet showed $65,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are considered negligible and can be ignored.
c. The company desires an ending inventory of finished units on hand at the end of each quarter equal to 30% of the budgeted sales for the next quarter. On December 31, Year 1, the company had 12,000 units on hand.
d. Five pounds of raw materials are required to complete one unit of product. The company requires an ending inventory of raw materials on hand at the end of each quarter equal to 10% of the production needs of the following quarter. On December 31, Year 1, the company had 23,000 pounds of raw materials on hand. (HINT: USE YOUR PURCHASES BUDGET x 5!!)
e. The raw material costs .80 per pound. Purchases of raw materials are paid for in the following pattern: 60% paid in the quarter the purchase was made, and the remaining 40% paid in the following quarter. On January 1, Year 2, the company's balance sheet showed $81,500 in accounts payable for raw materials purchases, all of which will be paid in the first quarter of the year. (HINT: THIS IS WHAT OUR CASH DISBURSEMENTS ARE BASED ON!!)
f. Other expenses include:
Salaries: $3,000 per month
Advertising: $1,000 per month
Depreciation $500 per month
Taxes: $200 per month accrued, paid annually in October
Prepare a sales budget, cash receipts budget, production budget, raw materials budget, and cash disbursements budget.