Question

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Budgeted sales (units) 9,300 11,300 13,300 12,300 The selling price of the company’s product is $33 per unit. Management expects to collect 55% of sales in the quarter in which the sales are made and 40% in the following quarter; 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which are expected to be collected in the first quarter, is $93,500. The company expects to start the first quarter with 2,650 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 2,900 units. Required: 1-a. Prepare the company's sales budget. 1-b. Prepare the schedule of expected cash collections. 2. Prepare the company's production budget for the upcoming fiscal year.

Answer 1

1-a. The company's sales budget:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Budgeted sales (Units)	9,300	11,300	13,300	12,300
Selling price per unit	33	33	33	33
Sales	306,900	372,900	438,900	405,900

Total year sales = 306,900 + 372,900 + 438,900 + 405,900 = 1,524,600

1-b. Schedule of expected cash collections:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Beginning accounts receivable	93,500
1st Quarter	168,795 (306,900*55%)	122,760 (306,900*40%)
2nd Quarter		205,095 (372,900*55%)	149,160 (372,900*40%)
3rd Quarter			241,395 (438,900*55%)	175,560 (438,900*40%)
4th Quarter				223,245 (405,900*55%)
Total cash Collections	262,295	327,855	390,555	398,805

2. Company's production budget for the upcoming fiscal year:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Budgeted sales Unit	9,300	11,300	13,300	12,300
Add: Closing Inventory	1,695	1,995	1,845	2,900 (Given)
Less: Opening Inventory	2,650 (Given)	1,695	1,995	1,845
Required Production in units	8,345	11,600	13,150	13,355

**Ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales.