Question

Sky High Parachute Company sells parachutes. As of January 1, Sky High had no beginning merchandise inventory. In the first quarter of 2020, Sky High sold 6,500 parachutes. The company’s sales forecast for the remainder of 2020 (in units) is:

Quarter 2: 7,000        Quarter 3: 7,500          Quarter 4: 9,000

Sky High’s selling price is $400 per parachute. All sales are credit sales. Sky High collects 85% of its sales in the quarter in which it made the sales and the remaining 15% in the following quarter.

           

As of March 31/April 1, Sky High had 1,300 parachutes in its merchandise inventory that it had purchased for $340 each. Sky High expects to pay its vendor $340 per parachute for the remainder of the year. Sky High plans to have the following number of parachutes in its merchandise inventory at the end of the remaining quarters in 2020.

Quarter 2: 1,500        Quarter 3: 2,000          Quarter 4: 1,000

Sky High buys the parachutes on credit. It pays for half of its purchases in the same quarter as it purchases them and pays the remaining half in the following quarter. Sky High pays for all its other expenses in the same quarter as it incurs them.

Sky High’s budget for variable selling expenses is $10 per each parachute sold. Sky High’s budget for fixed selling, general and administrative expenses is $25,000 each quarter. The $25,000 budget includes $5,000 in depreciation expense each quarter.

Please prepare the following budgets for Sky High for the second quarter of 2020 (Each question is worth 4 points):

1. Sales in dollars
2. Purchases of parachutes in units and dollars
3. Selling and Administrative Expenses in dollars
4. Cash collections (receipts) budget in dollars
5. Cash payments (disbursements) budget in dollars

Answer 1

Solution :

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Working Notes : In the working we have taken the reference of the Quarter 1 figures for the calcualtion of Quarter 2 figures.

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