Springton makes and sells a single product, black handbags, at a price of $1,600 each. During the three months to December 31,2020, he sold 1,500 handbags and turnover was the same for each month. He expects the volume of sales to remain unchanged for January 2021 but to increase by 5% in February, and by a further 20% in April. The price of the handbags will be increased by 10% in January and by a further 5% in June. The following budgeted information is presented to assist in the preparation. Month Budgeted sales $ Budgeted purchases $ January 880,000 600,000 February 924,000 750,000 March 924,000 820,000 April 1,108,800 820,000 May 1,250,000 968,000 June 1,285,000 1,250,000 Notes: Effective January 1, 2021 Springton’s collection on sales will be as follows: 70% collected in the month of sale The balance will be collected one month following sale Required: Prepare a sales budget for the handbags for the six months to June 2021, showing quantity, unit price and total projected sales monthly. Prepare the Cash collection schedule, with a total column, for the first three months. State two (2) advantages of budgeting.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter7: Budgeting

Section: Chapter Questions

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Springton makes and sells a single product, black handbags, at a price of $1,600 each. During the three months to December 31,2020, he sold 1,500 handbags and turnover was the same for each month.

He expects the volume of sales to remain unchanged for January 2021 but to increase by 5% in February, and by a further 20% in April. The price of the handbags will be increased by 10% in January and by a further 5% in June.

The following budgeted information is presented to assist in the preparation.

Month	Budgeted sales $	Budgeted purchases $
January	880,000	600,000
February	924,000	750,000
March	924,000	820,000
April	1,108,800	820,000
May	1,250,000	968,000
June	1,285,000	1,250,000

Notes:

Effective January 1, 2021 Springton’s collection on sales will be as follows:

70% collected in the month of sale
The balance will be collected one month following sale

Required:

Prepare a sales budget for the handbags for the six months to June 2021, showing quantity, unit price and total projected sales monthly.
Prepare the Cash collection schedule, with a total column, for the first three months.
State two (2) advantages of budgeting.

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