Question

1. Budgeted sales at O’Brien Vineyards over the next four months are given below:
July August September October
Budgeted sales $100,000 $160,000 $180,000 $120,000
All of the company's sales are on account. Collections for sales on account follow a pattern as follows: 70% of a month's credit sales are collected in the month of sale, 25% are collected in the month following sale, and the remainder is uncollectible. There is a $20,000 accounts receivable balance that will be collected in July.
Prepare the Schedule of Cash Collections.
July
August
September
Beginning AR
July sales:
August sales:
September sales:
Total cash collections
2. O’Brien Vineyards plans to sell 200,000 bottles of wine in July and anticipates a growth rate in sales of 5% per month. The desired monthly ending inventory in units of bottles is 30% of the next month's estimated sales. There are 58,000 bottles in inventory on June 30. (hint: for Sept ending inventory, you need 30% of October sales. Remember there is a 5% growth rate in sales per month).
Prepare the Production Budget
July
August
September
Budgeted sales
add:
Desired end inventory
Total needs
less:
Beginning inventory
Required production

Answer 1

Required Budgets are as prepared below:

O'Brien Vineyards
Schedule of Cash Collections.
	July	August	September	Total
Beginning AR	20,000			20,000
July sales:	70,000	25,000		95,000
August sales:		112,000	40,000	152,000
September sales:			126,000	126,000
Total cash collections	90,000	137,000	166,000	393,000
July Sales
100,000*.7	70000
100,000*.25	25000
August Sales
160,000*.7	112000
160,000*.25	40000
September Sales
180,000*.7	126000
O'Brien Vineyards
Production Budget
	July	August	September	Total	October
Budgeted sales	200,000	210,000	220,500	630,500	231,525
Add:
Desired end inventory (30% of next month sales)	63,000	66,150	69,458	69,458
Total needs	263,000	276,150	289,958	699,958
less:
Beginning inventory	58,000	63,000	66,150	58,000
Required production	205,000	213,150	223,808	641,958