Question

Requirement 2:

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:  

Data	Year 2 Quarter				Year 3 Quarter
	1	2	3	4	1	2
Budgeted unit sales	45,000	70,000	110,000	65,000	80,000	95,000
Selling price per unit	$7	per unit

	A	B	C	D	E	F	F
1	Chapter 9: Applying Excel
2
3	Data	Year 2 Quarter				Year 3 Quarter
4		1	2	3	4	1	2
5	Budgeted unit sales	45,000	70,000	110,000	65,000	80,000	95,000
6
7	• Selling price per unit	$7	per unit
8	• Accounts receivable, beginning balance	$65,000
9	• Sales collected in the quarter sales are made	75%
10	• Sales collected in the quarter after sales are made	25%
11	• Desired ending finished goods inventory is	30%	of the budgeted unit sales of the next quarter
12	• Finished goods inventory, beginning	12,000	units
13	• Raw materials required to produce one unit	5	pounds
14	• Desired ending inventory of raw materials is	10%	of the next quarter's production needs
15	• Raw materials inventory, beginning	23,000	pounds
16	• Raw material costs	$0.80	per pound
17	• Raw materials purchases are paid	60%	in the quarter the purchases are made
18	and	40%	in the quarter following purchase
19	• Accounts payable for raw materials, beginning balance	$81,500
20

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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 limited availability of a complex milling machine, the plant can produce no more than 80,000 units in any one quarter. Is this a potential problem?

Answer 1