Fab Manufacturing Corporation

Fab likes to maintain a finished goods inventory equal to 30% of the next month’s estimated sales. How many mugs should Fab plan on producing during the month of November?

One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month’s production needs. Purchases of raw materials for February would be budgeted to be:

The company is in the process of preparing a cash budget and must determine the expected cash collections by month. To this end, the following information has been assembled:

The accounts receivable balance on January 1 is $70,000. Of this amount, $60,000 represents uncollected December sales and $10,000 represents uncollected November sales.

· Sales are budgeted at $330,000 for November, $340,000 for December, and $340,000 for January.
· Collections are expected to be 80% in the month of sale, 17% in the month following the sale, and 3% uncollectible.
· The cost of goods sold is 75% of sales.
· The company would like to maintain ending merchandise inventories equal to 70% of the next month’s cost of goods sold. Payment for merchandise is made in the month following the purchase.
· Other monthly expenses to be paid in cash are $21,800.
· Monthly depreciation is $19,000.
· Ignore taxes.

Past experience has shown that the ending inventory for each month must be equal to 10% of the next month’s sales in units. The inventory on May 31 contained 400 units. The company needs to prepare a production budget for the second quarter of the year.