Question

1)        Sales Budget and Expected Cash Collections

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	11,000	12,000	14,000	13,000

The selling price of the company’s product is $18.00 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 $70,200.

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.

2)        Prepare a Flexible Budget

Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s static budget for May appears below:

Puget Sound Divers Static Budget For the Month Ended May 31
Budgeted diving-hours (q)	100
Revenue ($365.00q)	$36,500
Expenses:
Wages and salaries ($8,000 + $125.00q)	20,500
Supplies ($3.00q)	300
Equipment rental ($1,800 + $32.00q)	5,000
Insurance ($3,400)	3,400
Miscellaneous ($630 + $1.80q)	810
Total expense	30,010
Net operating income	$   6,490

During May, the company’s actual activity was 105 diving-hours.

Required:

Prepare a flexible budget for May.

3)        Prepare a Flexible Budget Performance Report

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:

Vulcan Flyovers Operating Data For the Month Ended July 31
	Actual Results	Flexible Budget	Static Budget
Flights (q)	48	48	50
Revenue ($320.00q)	$13,650	$15,360	$16,000
Expenses:
Wages and salaries ($4,000 + $82.00q)	8,430	7,936	8,100
Fuel ($23.00q)	1,260	1,104	1,150
Airport fees ($650 + $38.00q)	2,350	2,474	2,550
Aircraft depreciation ($7.00q)	336	336	350
Office expenses ($190 + $2.00q)	460	286	290
Total expense	12,836	12,136	12,440
Net operating income	$      814	$  3,224	$    3,560

The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount.

Required:

1. Prepare a flexible budget performance report for July that includes flexible-budget variances and sales-volume variances.
2. Which of the variances should be of concern to management? Explain.

Answer 1