Question

7. A.   

1. Below is budgeted production and sales information for Flushing Company for the month of December:

   	Product XXX	Product ZZZ
   Estimated beginning inventory	29,200 units	18,100 units
   Desired ending inventory	35,600 units	14,100 units
   Region I, anticipated sales	341,000 units	262,000 units
   Region II, anticipated sales	188,000 units	143,000 units

   The unit selling price for product XXX is $4 and for product ZZZ is $15.
   
   Budgeted sales for the month are

   a. $9,555,000

   b. $14,010,000

   c. $3,736,000

   d. $8,191,000

B,

1. Finch Company began its operations on March 31 of the current year. Finch has the following projected costs:
   

   	April	May	June
   Manufacturing costs (1)	$155,800	$198,200	$211,100
   Insurance expense (2)	910	910	910
   Depreciation expense	1,840	1,840	1,840
   Property tax expense (3)	470	470	470

   
   (1) Of the manufacturing costs, three-fourths are paid for in the month they are incurred; one-fourth is paid in the following month.
   (2) Insurance expense is $910 a month; however, the insurance is paid four times yearly in the first month of the quarter, (i.e., January, April, July, and October).
   (3) Property tax is paid once a year in November.

   The cash payments expected for Finch Company in the month of May are

   a. $148,650

   b. $38,950

   c. $226,550

   d. $187,600

7. C.

1. Woodpecker Co. has $307,000 in accounts receivable on January 1. Budgeted sales for January are $938,000. Woodpecker Co. expects to sell 20% of its merchandise for cash. Of the remaining 80% of sales on account, 75% are expected to be collected in the month of sale and the remainder the following month. The January cash collections from sales are

   a. $634,440

   b. $1,364,400

   c. $845,920

   d. $1,057,400

Answer 1

Answer of Question 7.A - Option d. $ 8,191,000

Calculation of Budgeted sales as follows:

	Product XXX	Product XXX	Product XXX	Product ZZZ	Product ZZZ	Product ZZZ
	Budgetes SalesUnits	Selling Price per unit	Budgeted Sales	Budgetes SalesUnits	Selling Price per unit	Budgeted Sales
	(i)	(ii)	(iii)[(i)*(ii)]	(iv)	(v)	(vi)[(iv)*(v)]
Region I	341000	$                   4	$         13,64,000	262000	$               15	$         39,30,000
Region II	188000	$                   4	$           7,52,000	143000	$               15	$         21,45,000
TOTAL			$         21,16,000			$         60,75,000

Total Budgetes Sales = Budgeted Sale of Product XXX + Budgeted Sale of Product ZZZ

= $ 21,16,000 + $ 60,75,000

= $ 8,191,000

Answer of Question 7.B - Option d. $ 187,600

Cash payments expected for Finch Company in the month of May are as follows:

Particular	Amount	Reference
Payment of April Month Manufacturing cost	$     38,950	$155,800 * (1/4)
Payment of May Month Manufacturing cost	$ 1,48,650	$198,200 * (3/4)
Total Expected Cash payment	$ 1,87,600

Insurance is paid four times yearly in the first month of the quarter, (i.e., January, April, July, and October), Thus there will be not be any payment in may

Property tax is paid once a year in November, Thus not considered.

Depreciation expense never paid , Depreciation is booking expenditure only.Thus not considered.

Answer of Question 7.C- Option d. $1,057,400

Total Cash Collection in January is as follows:

Particular	Amount
Cash Sales (20% of January Sales)	$   1,87,600
Collection of 75% of January Credit Sale (WN 1)	$   5,62,800
Outstanding accounts receivable (WN 2)	$   3,07,000
Total Cash Collection in January	$ 10,57,400

Thus, Total Cash Collection in January is $ 1,057,400

Working note:

1.

Credit Sale is 80 %; i.e $ 750,400 ( $938,000 * 80%)

Out of this 75% of credit sales collected in same month

Collection of Credit Sale = $ 750,400 * 75% = $ 562,800

2.

75% are expected to be collected in the month of sale and the remainder the following month.

Begiinig acconts receivable are $307,000, As per collection criteria; these are 25% of Credit sales of December month, Which are to be collected in the following month of sale event. I,e In january it will be collected.