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

1.

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted unit sales	11,600	12,600	14,600	13,600	52,400
Selling price per unit	$15	$15	$15	$15	$15
Budgeted sales	$174,000	$189,000	$219,000	$204,000	$786,000

2.

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted sales	$174,000	$189,000	$219,000	$204,000	$786,000
Cash collected in the same quarter	$113,100 ($174,000*65%)	$122,850 ($189,000*65%)	$142,350 ($219,000*65%)	$132,600 ($204,000*65%)	$510,900 ($786,000*65%)
Cash collected in the next quarter	$71,400	$52,200 ($174,000*30%)	$56,700 ($189,000*30%)	$65,700 ($219,000*30%)	$246,000
Budgeted cash collections	$184,500	$175,050	$199,050	$198,300	$756,900

3.

	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted unit sales	11,600	12,600	14,600	13,600	52,400
Desired ending inventory	1,890 (12,600*15%)	2,190 (14,600*15%)	2,040 (13,600*15%)	1,940	1,940
Less : Beginning inventory	1,740	1,890	2,190	2,040	1,740
Desired production	11,750	12,900	14,450	13,500	52,600