Question

Bombs Away Video Games Corporation has forecasted the following monthly sales:

  

January	$	102,000	July	$	47,000
February		95,000	August		47,000
March		27,000	September		57,000
April		27,000	October		87,000
May		22,000	November		107,000
June		37,000	December		125,000
Total annual sales = $780,000

Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for $5 per unit and costs $2 per unit to produce. A level production policy is followed. Each month's production is equal to annual sales (in units) divided by 12.

Of each month's sales, 20 percent are for cash and 80 percent are on account. All accounts receivable are collected in the month after the sale is made.

a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is 27,000 units.

  

	Bombs Away Video Games Corporation Production and Inventory Schedule in Units Beginning Inventory + Production – Sales = Ending Inventory January 27,000 February March April May June July August September October November December

  

b. Prepare a monthly schedule of cash receipts. Sales in December before the planning year are $100,000.
  

	Bombs Away Video Games Corporation Cash Receipts Schedule January February March April May June Sales Cash receipts: Cash sales Prior month's credit sales Total cash receipts

	Bombs Away Video Games Corporation Cash Receipts Schedule July August September October November December Sales Cash receipts: Cash sales Prior month's credit sales Total cash receipts

  

c. Prepare a cash payments schedule for January through December. The production costs of $2 per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $47,000 per month.

	Bombs Away Video Games Corporation Cash Payments Schedule January February March April May June Production cost Other cash payments Total cash payments

	Bombs Away Video Games Corporation Cash Payments Schedule July August September October November December Production cost Other cash payments Total cash payments

d. Prepare a monthly cash budget for January through December using the cash receipts schedule from part b and the cash payments schedule from part c. The beginning cash balance is $5,000, which is also the minimum desired. (Negative amounts should be indicated by a minus sign.)

	Bombs Away Video Games Corporation Cash Budget January February March April May June Beginning cash Net cash flow Cumulative cash balance Monthly loan or (repayment) Ending cash balance Cumulative loan balance

	Bombs Away Video Games Corporation Cash Budget July August September October November December Beginning cash Net cash flow Cumulative cash balance Monthly loan or (repayment) Ending cash balance Cumulative loan balance

Answer 1

Bombs Away Video Games Corporation
Production and Inventory Schedule in Units
	Beginning Inventory	+	Production (780000/5)12)	-	Sales	=	Ending Inventory
January	27000	+	13000	-	20400	=	19600
February	19600	+	13000	-	19000	=	13600
March	13600	+	13000	-	5400	=	21200
April	21200	+	13000	-	5400	=	28800
May	28800	+	13000	-	4400	=	37400
June	37400	+	13000	-	7400	=	43000
July	43000	+	13000	-	9400	=	46600
August	46600	+	13000	-	9400	=	50200
September	50200	+	13000	-	11400	=	51800
October	51800	+	13000	-	17400	=	47400
November	47400	+	13000	-	21400	=	39000
December	39000	+	13000	-	25000	=	27000
Bombs Away Video Games Corporation
Cash Receipts Schedule
	January	February	March	April	May	June	July	August	September	October	November	December
Sales	$102,000	$95,000	$27,000	$27,000	$22,000	$37,000	$47,000	$47,000	$57,000	$87,000	$107,000	$125,000
Cash Receipts
Cash Sales	$20,400	$19,000	$5,400	$5,400	$4,400	$7,400	$9,400	$9,400	$11,400	$17,400	$21,400	$25,000
Prior month's credit Sales	80000	$81,600	$76,000	$21,600	$21,600	$17,600	$29,600	$37,600	$37,600	$45,600	$69,600	$85,600
Total Cash Receipts	100400	100600	81400	27000	26000	25000	39000	47000	49000	63000	91000	110600
Bombs Away Video Games Corporation
Cash Payments Schedule
	January	February	March	April	May	June	July	August	September	October	November	December
Production Cost	26000	26000	26000	26000	26000	26000	26000	26000	26000	26000	26000	26000
Other Cash Payments	$47,000	$47,000	$47,000	$47,000	$47,000	$47,000	$47,000	$47,000	$47,000	$47,000	$47,000	$47,000
Total Cash Payments	73000	73000	73000	73000	73000	73000	73000	73000	73000	73000	73000	73000
Bombs Away Video Games Corporation
Cash Budget
	January	February	March	April	May	June	July	August	September	October	November	December
Beginning Cash	$5,000	$32,400	$60,000	$68,400	$22,400	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000
Net Cash flow	27400	27600	8400	-46000	-47000	-48000	-34000	-26000	-24000	-10000	18000	37600
Cumulative cash Balance	$32,400	$60,000	$68,400	$22,400	($24,600)	($43,000)	($29,000)	($21,000)	($19,000)	($5,000)	$23,000	$42,600
Monthly Loan (or repayment)	0				29600	48000	34000	26000	24000	10000	-18000	-37600
Ending Cash Balance	$32,400	$60,000	$68,400	$22,400	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000	$5,000
Cumulative Loan Balance	0				29600	77600	111600	$137,600	$161,600	$171,600	$153,600	$116,000