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Rolan Corporation is preparing budgets for the upcoming quarter ending December $31.$ Budgeted

sales $($in units$)$ for the next five months are:

October $20,000$

November $60,000$

December $50,000$

January $34,000$

February $35,000$

Below is additional information that may be relevant in preparing the budgets.

$$ The company produces ladles that sell for $$21\mathrm{.}00$ per unit.

$$ To guard against inventory stockouts, the company has a policy of maintaining an ending

inventory of $15$ percent of the following month$$s budgeted sales. At the beginning of

October, Rolan had $10,000$ units in inventory.

$$ Each unit of output requires $4$ kilograms of direct material. To guard against stockouts of raw

materials, the company has a policy of maintaining a raw materials inventory of $20$ percent

of the following month$$s production. At the beginning of October, Rolan has $26,000$

kilograms of direct materials on hand. Each kilogram of direct materials costs $$0\mathrm{.}50.$

$$ Each unit of output requires $0\mathrm{.}2$ hours $(12$ minutes$)$ of direct labour and employees are paid a

standard rate of $$18$ per hour

$$ Rolan applies overhead using a variable rate of $$12$ per direct labour hour. The fixed

overhead is $$71,000$ per month. Of that amount, $$20,000$ are non$-$cash costs, such as

depreciation on assets.$$ Rolan has both fixed and variable components to the selling and administrative expenses.

Accountants at Rolan estimate that the variable selling and administrative expenses are $$1\mathrm{.}00$

per unit sold. Fixed selling and administrative expenses are $$140,000$ per month, $$20,000$ are

non$-$cash costs, such as depreciation on assets.

$$ Fifty percent of sales are made in cash. The remaining $50\%$ of sales are made on account.

The company collects $60\%$ of sales made on account in the month of the sale, $20\%$ in the

month following the sale, $15\%$ in the second month following the sale, and $5\%$ are

uncollectible. Rolan Company had total sales of $$672,000$ in August and $$588,000$ in

September.

$$ The company pays of half of its purchases in the month of the purchase and the remaining

half in the month following the purchase. At the beginning of the quarter, Rolan owed its creditors $$24,000$ for purchases of direct materials.

ANSWER:

$($G$)$ Prepare the cash collections schedule for the months of October, November and December.

$($H$)$ Prepare the cash payments schedule for the months of October, November, and December.

$($I$)$ Explain the importance of budgeting to a business.

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