Question

Exercise 8-14 Sales and Production Budgets [LO8-2, LO8-3] 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 11,600 12,600 14,600 13,600 The selling price of the company’s product is $15 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 $71,400. The company expects to start the first quarter with 1,740 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 1,940 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

Answer-1)-

JESSI CORPORATION
TOTAL SALES
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total-Year
Total Sales $	174000	189000	219000	204000	786000

Explanation-

JESSI CORPORATION
TOTAL SALES
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total-Year
Budgeted unit sales (a)	11600	12600	14600	13600	52400
Selling price per unit (b)	$15	$15	$15	$15	$15
Budgeted sales (c=a*b) $	174000	189000	219000	204000	786000

2)-

JESSI CORPORATION
Schedule of Expected Cash Collectios
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total-Year
	$	$	$	$	$
Total cash collections $	184500	175050	199050	198300	756900

Explanation-

JESSI CORPORATION
Schedule of Expected Cash Collectios
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total-Year
Budgeted unit sales (a)	11600	12600	14600	13600	52400
Selling price per unit (b)	$15	$15	$15	$15	$15
Budgeted sales (c=a*b) $	174000	189000	219000	204000	786000
Cash collections
Beginning Accounts receivable	$71400				71400
1st Quarter sales	$174000*65%= $113100	$174000*30%= $52200			165300
2nd Quarter sales		$189000*65%= $122850	$189000*30%= $56700		179550
3rd Quarter sales			$219000*65%= $142350	$219000*30%= $65700	208050
4th Quarter sales				$204000*65%= $132600	132600
Total cash collections $	184500	175050	199050	198300	756900

3)-

JESSI CORPORATION
Production Budget
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total-Year
Unit sales (a)	11600	12600	14600	13600	52400
Add:- Desired ending finished goods inventory (b)	12600*15% =1890 units	14600*15%=2190 units	13600 units*15%= 2040 units	1940 units	8060
15% of the next month's sales needs
Less:-Opening finished goods inventory (c)	1740	1890	2190	2040	7860
Number of units to be produced (d=a+b-c)	11750	12900	14450	13500	52600