Question

Esquire Products Inc. expects the following monthly sales: January $ 43,000 July $ 37,000 February 34,000 August 41,000 March 27,000 September 44,000 April 29,000 October 49,000 May 23,000 November 57,000 June 21,000 December 39,000 Total sales = $444,000 Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for $2 each and produces them for $1 each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.

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

b. Prepare a cash receipts schedule for January through December. Assume that dollar sales in the prior December were $20,00

c. Prepare a cash payments schedule for January through December. The production costs ($1 per unit produced) are paid for in the month in which they occur. Other cash payments (besides those for production costs) are $8,900 per month.

d. Construct a 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 $3,000, which is also the minimum desired. (Negative amounts should be indicated by a minus sign.)

e. Determine total current assets for each month. Include cash, accounts receivable, and inventory. The accounts receivable for a given month is equal to 60 percent of that month's sales. Inventory is equal to ending inventory (part a) times the cost of $1 per unit.

Answer 1

Company's sales will be collected in two stages. 40% of the sales will be collected in the month of sales (cash sales) and 60% of the sales will be collected in thefollowing month (Credit sales).

Total annual sales are $444,000 and Sale price is $2 per unit, hence annual production will be 222,000 units ($444,000/$2 per unit)

Monthly Production = Annual Production/12 = 222,000/12 = 18,500

a) Monthly production and inventory schedule (in units)

Month	Beginning inventory (1)	Units produced (2)	Units sold (3 = Monthly sales/$2 per unit)	Ending inventory (4 = 1+2-3)
January	27,000	18,500	($43,000/$2) = 21,500	24,000
February	24,000	18,500	($34,000/$2) = 17,000	25,500
March	25,500	18,500	($27,000/$2) = 13,500	30,500
April	30,500	18,500	($29,000/$2) = 14,500	34,500
May	34,500	18,500	($23,000/$2) = 11,500	41,500
June	41,500	18,500	($21,000/$2) = 10,500	49,500
July	49,500	18,500	($37,000/$2) = 18,500	49,500
August	49,500	18,500	($41,000/$2) = 20,500	47,500
September	47,500	18,500	($44,000/$2) = 22,000	44,000
October	44,000	18,500	($49,000/$2) = 24,500	38,000
November	38,000	18,500	($57,000/$2) = 28,500	28,000
December	28,000	18,500	($39,000/$2) = 19,500	27,000

b) Cash receipt schedule (Amount in $)

Month	Cash Sales (40% of sales) (1)	Collection from Accounts Receivable (60% of previous sales) (2)	Total Cash Collections (3 = 1+2)
January	($43,000*40%) = 17,200	($20,000*60%) = 12,000	29,200
February	($34,000*40%) = 13,600	($43,000*40%) = 25,800	39,400
March	($27,000*40%) = 10,800	($34,000*60%) = 20,400	31,200
April	($29,000*40%) = 11,600	($27,000*60%) = 16,200	27,800
May	($23,000*40%) = 9,200	($29,000*60%) = 17,400	26,600
June	($21,000*40%) = 8,400	($23,000*60%) = 13,800	22,200
July	($37,000*40%) = 14,800	($21,000*60%) = 12,600	27,400
August	($41,000*40%) = 16,400	($37,000*60%) = 22,200	38,600
September	($44,000*40%) = 17,600	($41,000*60%) = 24,600	42,200
October	($49,000*40%) = 19,600	($44,000*60%) = 26,400	46,000
November	($57,000*40%) = 22,800	($49,000*60%) = 29,400	52,200
December	($39,000*40%) = 15,600	($57,000*60%) = 34,200	49,800

c)   Cash Payment schedule (Amount in $)

Month	Production cost paid (units produced*$1) (1)	Other cost paid (2)	Total Cash payments (3 = 1+2)
January	18,500	8,900	27,400
February	18,500	8,900	27,400
March	18,500	8,900	27,400
April	18,500	8,900	27,400
May	18,500	8,900	27,400
June	18,500	8,900	27,400
July	18,500	8,900	27,400
August	18,500	8,900	27,400
September	18,500	8,900	27,400
October	18,500	8,900	27,400
November	18,500	8,900	27,400
December	18,500	8,900	27,400

d) Cash Budget (Amount in $)

Month	Cash collections from part b (1)	Cash payments from part c (2)	Increase/(decrease) in cash (3 = 1-2)	Opening cash balance (4)	Closing cash Balance (5 = 4+3)
January	29,200	27,400	1,800	3,000	4,800
February	39,400	27,400	12,000	4,800	16,800
March	31,200	27,400	3,800	16,800	20,600
April	27,800	27,400	400	20,600	21,000
May	26,600	27,400	(800)	21,000	20,200
June	22,200	27,400	(5,200)	20,200	15,000
July	27,400	27,400	0	15,000	15,000
August	38,600	27,400	11,200	15,000	26,200
September	42,200	27,400	14,800	26,200	41,000
October	46,000	27,400	18,600	41,000	59,600
November	52,200	27,400	24,800	59,600	84,400
December	49,800	27,400	22,400	84,400	106,800