Question

Badlands, Inc. manufactures a household fan that sells for $25 per unit. All sales are on account, with 30 percent of sales collected in the month of sale and 70 percent collected in the following month. The data that follow were extracted from the company’s accounting records.

Badlands maintains a minimum cash balance of $20,000. Total payments in January 20x1 are budgeted at $220,000.

A schedule of cash collections for January and February of 20x1 revealed the following receipts for the period:

	Cash Receipts
	January			February
From December 31 accounts receivable	$	126,000
From January sales		87,000		$	133,000
From February sales					75,000

March 20x1 sales are expected to total 8,500 units.

Finished-goods inventories are maintained at 30 percent of the following month’s sales.

The December 31, 20x0, balance sheet revealed the following selected figures: cash, $23,600; accounts receivable, $126,000; and finished goods, $24,000.

Required:

Determine the number of units that Badlands sold in December 20x0.

Compute the sales revenue for March 20x1.

Compute the total sales revenue to be reported on Badlands’ budgeted income statement for the first quarter of 20x1.

Determine the accounts receivable balance to be reported on the March 31, 20x1, budgeted balance sheet.

Calculate the number of units in the December 31, 20x0, finished-goods inventory.

Calculate the number of units of finished goods to be manufactured in January 20x1.

Calculate the financing required in January, if any, to maintain the firm’s minimum cash balance.

Answer 1

Solution:

Number of units sold in December 20x0:

Account Receivable on 31 december 20x0= $126000

As given 70% of month sale are collected in following month.

Therefore Sales made in December 20x0 = $126000 / 70% = $180000

No. of units sold in December 20x0 = Sales / Price per unit = $180000/$25 = 7200 units

Sales revenue for March 20x1

Expected Sales units in march 20x1= 8500

Sale price per unit = $25

Sales Revenue in march 20x1= 8500 * $25 = $212500

Total sales revenue to be reported on Badlands’ budgeted income statement for the first quarter of 20x1.

January Sales = $87000 +$133000 = $220000

February sales = $75000 / 30% = $250000

March Sales = $212500

Sales Revenue For First Quarter of 20x1 = $220000 +$250000+ $212500 = $682500

Accounts receivable balance to be reported on the March 31, 20x1, budgeted balance sheet:

Account Receivable balance on March 31, 20x1 = 70% of March Sales = $212500 * 70% = $148750

Number of units in the December 31, 20x0, finished-goods inventory

Finished goods inventory = 30% of following month sales

Finished goods inventory at December 31, 20x0 = January sales units * 30%

= ($220000 / $25) * 30% = 8800 * 30% = 2640 units

Number of units of finished goods to be manufactured in January 20x1:

Number of units in December 31, 20x0 (opening Finished goods inventory) = 2640units

Number of units in January 31, 20x1 (Closing Finished goods inventory) = 30% of February sales units

= ($250000/25) * 30% = 3000 units

January Sales units = January Sales / Price per Unit = $220000 / $25 = 8800 units

Number of units of finished goods to be manufactured in January 20x1 = Sales of January+Closing Inventory- Opening Inventory

= 8800 + 3000 - 2640 = 9160 units

Financing required in January, if any, to maintain the firm’s minimum cash balance:

Opening cash Balance = $23600

Cash receipts during January 20x1 = $126000 + $87000 = $213000

Budgeted Cash Payments during January 20x1 = $220000

Cash Balance at January 31, 20x1 (at end of January) = Opening Cash Balnce + Cash receipts - Cash Payments

=$23600 + $213000 - $220000 = $16600

Financing Required in January, 20x1 = Minimum Cash Balance required - Cash Balance at the end of January

= $20000 - $16600 = $3400