Sitara Company manufactures umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to...
Question

# Sitara Company manufactures umbrellas. The company is preparing detailed

budgets for the third quarter and has assembled the following information to assist in

the budget preparation:

a. The Marketing Department has estimated sales as follows for the remainder of the

year (in units):

July . . . . . . . . . . . . . . . . . . .30,000 October . . . . . . . . . . . . . . . . 20,000

August . . . . . . . . . . . . . . . . .70,000 November . . . . . . . . . . . . . . 10,000

September . . . . . . . . . . . . . .50,000 December . . . . . . . . . . . . . . 10,000

The selling price of the beach umbrellas is \$12 per unit

b. All sales are on account. Based on past experience, sales are collected in the

following pattern:

30% in the month of sale

65% in the month following sale

5% uncollectible

Sales for June totaled \$300,000.

c. The company maintains finished goods inventories equal to 15% of the following

month's sales. This requirement will be met at the end of June.

d. Each beach umbrella requires 4 feet of Gilden, a material that is sometimes hard to

acquire. Therefore, the company requires that the ending inventory of Gilden be equal

to 50% of the following month's production needs. The inventory of Gilden on hand at

the beginning and end of the quarter will be:

June 30 . . . . . . . . . . . . . . 72,000 feet

September 30 . . . . . . . . .? feet

e. Gilden costs \$0.80 per foot. One-half of a month's purchases of Gilden is paid for in

the month of purchase; the remainder is paid for in the following month. The accounts

payable on July 1 for purchases of Gilden during June will be \$76,000.

Required:

1. Prepare a sales budget, by month and in total, for the third quarter. (Show your

budget in both units and dollars.) Also prepare a schedule of expected cash collections,

by month and in total, for the third quarter.

2. Prepare a production budget for each of the months July-October.

3. Prepare a direct materials budget for Gilden, by month and in total, for the third

quarter. Also prepare a schedule of expected cash disbursements for Gilden, by month

and in total, for the third quarter.

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