Question

Front Page Video Games Corporation has forecasted the following monthly sales:

January		$98,000	July		$43,000
February		91,000	August		43,000
March		23,000	September		53,000
April		23,000	October		83,000
May		18,000	November		103,000
June		33,000	December		121,000
Total sales = $732,000

The firm sells its Last Spike video game for $5 per unit, and the cost to produce the game is $2 per unit. A level production policy is followed. Each month's production is equal to annual sales (in units) divided by 12.

Of each month's sales, 40 percent are for cash and 60 percent are on account. All accounts receivable are collected in the month after the sale is made.

a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is 23,000 units. (Note: To do part a, you should work in terms of units of production and units of sales.)

Front Page Video Games Corporation
Production and inventory schedule in units
	Beginning inventory	+	Production	–	Sales	=	Ending inventory
January	23,000	+		–		=
February		+		–		=
March		+		–		=
April		+		–		=
May		+		–		=
June		+		–		=
July		+		–		=
August		+		–		=
September		+		–		=
October		+		–		=
November		+		–		=
December		+		–		=

b. Prepare a monthly schedule of cash receipts. Sales in the December before the planning year were $100,000. Work part b using dollars.

Front Page Video Games Corporation
	January	February	March	April	May	June
Sales	$	$	$	$	$	$
Cash sales
Prior month’s sales
Total cash receipts	$	$	$	$	$	$

Front Page Video Games Corporation
	July	August	September	October	November	December
Sales	$	$	$	$	$	$
Cash sales
Prior month’s sales
Total cash receipts	$	$	$	$	$	$

c. Determine a cash payments schedule for January through December. The production costs of $2 per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $43,000 per month.

Front Page Video Games Corporation
Constant production
	January	February	March	April	May	June
Production cost	$	$	$	$	$	$
Other cash payments
Total cash payments	$	$	$	$	$	$

Front Page Video Games Corporation
Constant production
	July	August	September	October	November	December
Production cost	$	$	$	$	$	$
Other cash payments
Total cash payments	$	$	$	$	$	$

d. Prepare a monthly cash budget for January through December. The beginning cash balance is $5,000, and that is also the minimum desired. (Do not leave any empty spaces; input a 0 wherever it is required. Negative answers and amounts to be deducted should be indicated by a minus sign.)

Front Page Video Games Corporation
	January	February	March	April	May	June
Net cash flow	$	$	$	$	$	$
Beginning cash
Cumulative cash balance	$	$	$	$	$	$
Monthly loan or (repayment)
Cumulative loan
Ending cash balance	$	$	$	$	$	$

Front Page Video Games Corporation
	July	August	September	October	November	December
Net cash flow	$	$	$	$	$	$
Beginning cash
Cumulative cash balance	$	$	$	$	$	$
Monthly loan or (repayment)
Cumulative loan
Ending cash balance	$	$	$	$	$	$

Answer 1