Question

Exercise 8-14 Sales and Production Budgets [LO8-2, LO8-3]

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	11,100	12,100	14,100	13,100

The selling price of the company’s product is $10 per unit. Management expects to collect 75% of sales in the quarter in which the sales are made, 20% 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 $70,400.

The company expects to start the first quarter with 1,665 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,865 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

1.

Sales Budget

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	TOTAL
Budgeted unit sales (A)	11,100	12,100	14,100	13,100	50,400
Selling Price per Unit (B)	10	10	10	10
Total Sales (A*B)	111000	121000	141000	131000	504000

2.

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total
Total Sales	111000	121000	141000	131000	504000
CASH Collections:
Same month (75% of Sales)	111000*75% = 83250	121000*75% = 90750	141000*75% = 105750	131000*75%= 98250	378000
Next month (20% of Sale)	(given) 70400	111000*20% = 22200	121000*20% = 24200	141000*20% = 28200	145000
Total Cash Collections	153650	112950	129950	126450	523000

3.

Production (units)

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	TOTAL
Units Sold (given)	11,100	12,100	14,100	13,100	50,400
Closing Stock (15% of next quarter sales)	12100*15% = 1815	14100*15% = 2115	13100*15% = 1965	1865 (given)	1865 (closing at the end of year ie 4th quarter)
	12,915	14,215	16,065	14,965	52,265
Less: Opening Stock	1665 (given)	1815 (closing of last quarter)	2115	1965	1665 (Opening of the year ie 1st quarter)
Total Production	11,250	12,400	13,950	13,000	50,600