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# Budgets

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Sales, production, purchases, and cash budgets: Rolen, Inc., is in the process of preparing the fourth quarter budget for 2010, and the following data have been assembled: â?¢ The company sells a single product at a price of \$ 25 per unit. The estimated sales volume for the next six months is as follows:

September . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000 units
October . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 units
November . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 units
December . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 units
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 units
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 units

â?¢ All sales are on account. The companyâ??s collection experience has been that 30% of a monthâ??s sales are collected in the month of sale, 68% are collected in the month following the sale, and 2% are uncollectible. It is expected that the net realizable value of accounts receivable ( i. e., accounts receivable less allowance for uncollectible accounts) will be \$ 211,000 on September 30, 2010.

â?¢ Managementâ??s policy is to maintain ending finished goods inventory each month at a level equal to 30% of the next monthâ??s budgeted sales. The finished goods inventory on September 30, 2010, is expected to be 3,600 units.

â?¢ To make one unit of finished product, 5 pounds of materials are required. Managementâ??s policy is to have enough materials on hand at the end of each month to equal 40% of the next monthâ??s estimated usage. The raw materials inventory is expected to be 25,200 pounds on September 30, 2010.

â?¢ The cost per pound of raw material is \$ 2, and 70% of all purchases are paid for in the month of purchase; the remainder is paid in the following month. The accounts payable for raw material purchases is expected to be \$ 37,980 on September 30, 2010.

Required:

a. Prepare a sales budget in units and dollars, by month and in total, for the fourth quarter ( October, November, and December) of 2010.

b. Prepare a schedule of cash collections from sales, by month and in total, for the fourth quarter of 2010.

c. Prepare a production budget in units, by month and in total, for the fourth quarter of 2010.

d. Prepare a materials purchases budget in pounds, by month and in total, for the fourth quarter of 2010.

e. Prepare a schedule of cash payments for materials, by month and in total, for the fourth quarter of 2010.