Question

In: Accounting

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal...

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Budgeted unit sales 12,800 13,800 15,800 14,800

The selling price of the company’s product is $27 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $73,800.

The company expects to start the first quarter with 2,560 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 20% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 2,760 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Solutions

Expert Solution

Solution 1:

  • Budgeted sales for a quarter can be computed by multiplying the Budgeted Sales unit with the Expected Selling Price.
  • Expected Selling Price is $27 per unit (given in question).

Budgeted Sales (In Units) is already given.

Q1 Q2 Q3 Q4 Total
Budgeted Sales (In Units) 12800 13800 15800 14800 57200
Expected Selling Price per unit 27 27 27 27 27
Budgeted Sales (In Dollars) 345,600 372,600 426,600 399,600

1,544,400

Solution 2:​

Calculation of Expected cash Collection Quarter wise and Whole Year

Q1 Q2 Q3 Q4 Total
Opening Accounts Receivable 73,800 73,800
1st Quarter Sales 224,640 103,680 328,320
2nd Quarter Sales 242,190 111,780 353,970
3rd Quarter Sales 277,290 127,980 405,270
4th Quarter Sales 259,740 259,740
Total 298,440 345,870 389,070 387,720 1,421,100

Working Note:

  • Opening Balance of Accounts receivable will be recovered in Q1
  • 65% of Budgeted Sales of a particular quarter will be received in the same quarter.
  • 30% of the budgeted sales for a quarter will be received in next quarter.
  • 5% of the budgeted sales for a quarter will be assumed as uncollectible and will not be collected as cash in any period.
  • For 4th quarter sales, only 65% of the revenue will be received in quarter 4.

Solution 3:

Production in units of finished goods for each quarter of the fiscal year and for the year as a whole:

Q1 Q2 Q3 Q4 Total
Closing Inventory 2,760 3,160 2,960 2,760 2,760
Add:Sales 12,800 13,800 15,800 14,800 57,200
Less:Opening Inventory 2,560 2,760 3,160 2,960 2,560
Production (in units) 13,000 14,200 15,600 14,600 57,400

Working Note:

  • Production (in Units) is calculated by the formulae as Closing Stock + Sales – Opening Stock.
  • It should be observed that Closing Inventory for a quarter will become Opening stock for next quarter.
  • Since Q4 is ended with 2,760 units of closing inventory, we will use the same in our calculation.
  • Opening Inventory for Q1 is 2,560 units.
  • For the year calculation, we will use the Opening Stock same as of Q1 and Closing stock same as of Q4.

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