Question

The company has just hired a new marketing manager who insists that unit sales can be dramatically increased by dropping the selling price from $8 to $7. The marketing manager would like to use the following projections in the budget: Year 2 Quarter Year 3 Quarter Data 1 2 3 4 1 2 Budgeted unit sales 45,000 70,000 120,000 70,000 90,000 90,000 Selling price per unit $7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Chapter 8: Applying Excel Data Year 3 Quarter 1 2 3 4 1 2 Budgeted unit sales 45,000 70,000 120,000 70,000 90,000 90,000 • Selling price per unit $7 per unit • Accounts receivable, beginning balance $65,000 • Sales collected in the quarter sales are made 75% • Sales collected in the quarter after sales are made 25% • Desired ending finished goods inventory is 30% of the budgeted unit sales of the next quarter • Finished goods inventory, beginning 12,000 units • Raw materials required to produce one unit 5 pounds • Desired ending inventory of raw materials is 10% of the next quarter's production needs • Raw materials inventory, beginning 23,000 pounds • Raw material costs $0.80 per pound • Raw materials purchases are paid 60% in the quarter the purchases are made and 40% in the quarter following purchase • Accounts payable for raw materials, beginning balance $81,500 a. What are the total expected cash collections for the year under this revised budget? b. What is the total required production for the year under this revised budget? c. What is the total cost of raw materials to be purchased for the year under this revised budget? d. What are the total expected cash disbursements for raw materials for the year under this revised budget? e. After seeing this revised budget, the production manager cautioned that due to the current production constraint, a complex milling machine, the plant can produce no more than 90,000 units in any one quarter. Is this a potential problem? Yes No

Answer 1

Solution 1:

Schedule of expected cash collection
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Accounts receivables beginning	$65,000.00				$65,000.00
Cash received for Q1 Sale	$236,250.00	$78,750.00			$315,000.00
Cash received for Q2 Sale		$367,500.00	$122,500.00		$490,000.00
Cash received for Q3 Sale			$630,000.00	$210,000.00	$840,000.00
Cash received for Q4 Sale				$367,500.00	$367,500.00
Budgeted Cash Collection	$301,250.00	$446,250.00	$752,500.00	$577,500.00	$2,077,500.00

Solution 2:

Production Budget
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year	Quarter 1, next year
Budgeted sales unit	45000	70000	120000	70000	305000	90000
Add: ending inventory (30% of next quarter sales)	21000	36000	21000	27000	27000	27000
Less: Beginning inventory	12000	21000	36000	21000	12000	27000
Estimated production unit	54000	85000	105000	76000	320000	90000

Solution 3:

Budgeted Cost of raw material purchases
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted Production units	54000	85000	105000	76000	320000
Raw material per unit (In Pounds)	5	5	5	5	5
Total requirement of raw materials	270000	425000	525000	380000	1600000
Add: Desired ending inventory (10% of next quarter production needs)	42500	52500	38000	45000	45000
Less: Beginning inventory	23000	42500	52500	38000	23000
Budgeted purchase units of raw material (In Pounds)	289500	435000	510500	387000	1622000
Raw material cost per pound	$0.80	$0.80	$0.80	$0.80	$0.80
Budgeted cost of purchases	$231,600.00	$348,000.00	$408,400.00	$309,600.00	$1,297,600.00

Solution 4:

Schedule of expected cash disbursement for merchandise purchases
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Accounts Payable, Beginning	$81,500.00				$81,500.00
Q1 Purchases	$138,960.00	$92,640.00			$231,600.00
Q2 Purchases		$208,800.00	$139,200.00		$348,000.00
Q3 Purchases			$245,040.00	$163,360.00	$408,400.00
Q4 Purchases				$185,760.00	$185,760.00
Total payments	$220,460.00	$301,440.00	$384,240.00	$349,120.00	$1,255,260.00

Solution 5:

Yes,  this is a potential problem as production budgeted for quarter 3 is greater than 90000 units