Question

The marketing department of Deer Park 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	11,900	12,900	14,900	13,900

The selling price of the company’s product is $18 per unit. Management expects to collect 75% of sales in the quarter in which the sales are made, 20% 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 $72,000.

The company expects to start the first quarter with 1,785 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 1,985 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.

Answer 1

1.

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Budgeted unit sales	11,900	12,900	14,900	13,900	53,600
Selling price per unit	$18	$18	$18	$18	$18
Total sales	$214,200	$232,200	$268,200	$250,200	$964,800

2.

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
75% Cash collections from current quarter sales	$160,650 (214,200*75%)	$174,150 (232,200*75%)	$201,150 (268,200*75%)	$187,650 (250,200*75%)	$723,600
20% Cash collections from previous quarter sales	72,000	42,840 (214,200*20%)	46,440 (232,200*20%)	53,640 (268,200*20%)	214,920
Total budgeted cash collections	$232,650	$216,990	$247,590	$241,290	$938,520

3.

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Budgeted unit sales	11,900	12,900	14,900	13,900	53,600
Add: Desired ending finished goods inventory	1,935 (12,900*15%)	2,235 (14,900*15%)	2,085 (13,900*15%)	1,985	1,985
Less: Beginning finished goods inventory	1,785	1,935	2,235	2,085	1,785
Budgeted production in units	12,050	13,200	14,750	13,800	53,800