Question

Down Under Products, Ltd., of Australia has budgeted sales of its popular boomerang for the next four months as follows:

	Unit Sales
April		78,000
May		85,000
June		118,000
July		94,000

The company is now in the process of preparing a production budget for the second quarter. Past experience has shown that end-of-month inventory levels must equal 20% of the following month’s unit sales. The inventory at the end of March was 15,600 units.

Required:

Prepare a production budget by month and in total, for the second quarter.

	Down Under Products, Ltd., Production Budget April May June Quarter Budgeted units sales Total needs 0 0 0 0 Required production in units 0 0 0 0

Silver Company makes a product that is very popular as a Mother’s Day gift. Thus, peak sales occur in May of each year, as shown in the company’s sales budget for the second quarter given below:

	April	May	June	Total
Budgeted sales (all on account)	$420,000	$620,000	$240,000	$1,280,000

From past experience, the company has learned that 20% of a month’s sales are collected in the month of sale, another 65% are collected in the month following sale, and the remaining 15% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $350,000, and March sales totaled $380,000.

Required:

1. Prepare a schedule of expected cash collections from sales, by month and in total, for the second quarter.

2. What is the accounts receivable balance on June 30th?

Schedule of Expected Cash Collections April May June Total February sales $0 March sales 0 April sales 0 May sales 0 June sales 0 Total cash collections $0 $0 $0 $0

Answer 1

Question 1

Soution

Down Under Products, Ltd.,
Production Budget
	April	May	June	Quarter
Budgeted unit sales	78000	85000	118000	281000
Add: Desired Units of Ending Finished Inventory	17000	23600	18800	18800
Total needs	95000	108600	136800	299800
Less: Units of Beginning finished goods Inventory	15600	17000	23600	15600
Required production in units	79400	91600	113200	284200

.

Question 2

Schedule of Expected Cash Collections
	April	May	June	Total
February Sales	$ 52,500			$ 52,500
March Sales	$ 247,000	$ 57,000		$ 304,000
April Sales	$ 84,000	$ 273,000	$ 63,000	$ 420,000
May Sales		$ 124,000	$ 403,000	$ 527,000
June Sales			$ 48,000	$ 48,000
Total Cash Collection	$ 383,500	$ 454,000	$ 514,000	$ 1,351,500

.

Total Receivables at June 30

$ 285,000

Working

	April	May	June
February Sales	=350000*15%
March Sales	=380000*65%	=380000*15%
April Sales	=420000*20%	=420000*65%	=420000*15%
May Sales		=620000*20%	=620000*65%
June Sales			=240000*20%

.

Accounts Receivables Balance
Balance of may sales	(15% of sale)	$ 93,000
Balance of June Sale	(80% of sale)	$ 192,000
Total Receivables at June 30		$ 285,000