Question

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Budgeted unit sales	12,800	13,800	15,800	14,800

The selling price of the company’s product is $27 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $73,800.

The company expects to start the first quarter with 2,560 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 20% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 2,760 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Answer 1

Solution 1:

• Budgeted sales for a quarter can be computed by multiplying the Budgeted Sales unit with the Expected Selling Price.
• Expected Selling Price is $27 per unit (given in question)
• Budgeted Sales (In Units) is already given.

	Q1	Q2	Q3	Q4	Total
Budgeted Sales (In Units)	12800	13800	15800	14800	57200
Expected Selling Price per unit	27	27	27	27	27
Budgeted Sales (In Dollars)	345,600	372,600	426,600	399,600	1,544,400

Solution 2:

Calculation of Expected cash Collection Quarter wise and Whole Year

Expected Cash Collection
	Q1	Q2	Q3	Q4	Total
Opening Accounts Receivable	73,800				73,800
1st Quarter Sales	224,640	103,680			328,320
2nd Quarter Sales		242,190	111,780		353,970
3rd Quarter Sales			277,290	127,980	405,270
4th Quarter Sales				259,740	259,740
Total	298,440	345,870	389,070	387,720	1,421,100

Working Note:

• Opening Balance of Accounts receivable will be recovered in Q1
• 65% of Budgeted Sales of a particular quarter will be received in the same quarter.
• 30% of the budgeted sales for a quarter will be received in next quarter.
• 5% of the budgeted sales for a quarter will be assumed as uncollectible and will not be collected as cash in any period.
• For 4^th quarter sales, only 65% of the revenue will be received in quarter 4.

Solution 3:

Production in units of finished goods for each quarter of the fiscal year and for the year as a whole:

	Q1	Q2	Q3	Q4	Total
Closing Inventory	2,760	3,160	2,960	2,760	2760
Add: Sales	12,800	13,800	15,800	14,800	57,200
Less: Opening Inventory	2,560	2,760	3,160	2,960	2,560
Production (in units)	13,000	14,200	15,600	14,600	57,400

Working Note:

• Production (in Units) is calculated by the formulae as Closing Stock + Sales – Opening Stock.
• It should be observed that Closing Inventory for a quarter will become Opening stock for next quarter.
• Since Q4 is ended with 2,760 units of closing inventory, we will use the same in our calculation.
• Opening Inventory for Q1 is 2,560 units.
• For the year calculation, we will use the Opening Stock same as of Q1 and Closing stock same as of Q4.