Question

Exercise 7-14 Sales and Production Budgets [LO7-2, LO7-3]

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	12,300	13,300	15,300	14,300

The selling price of the company’s product is $22 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 $72,800.

The company expects to start the first quarter with 2,460 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 2,660 units.

Required:

1-a.	Complete the company's sales budget.

            

1-b.	Complete the schedule of expected cash collections.

            

2.	Prepare the company’s production budget for the upcoming fiscal year.

           

Answer 1

1 a

Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Sales in units	12,300	13,300	15,300	14,300
Selling price per unit	22	22	22	22
Sales in dollars	270,600	292,600	336,600	314,600

1-b

Schedule of collections:

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Sales in dollars	270,600	292,600	336,600	314,600
Collections:
Opening accounts receivables	72,800
1st Quarter sales	202,950	54,120
	[270600*75%]	[270600*20%]
2nd Quarter sales		219,450	58,520
		[292600*75%]	[292600*20%]
3rd Quarter sales			252,450	67,320
			[336600*75%]	[336600*20%]
4th Quarter sales				235,950
				[314600*75%]
Total collections	275,750	273,570	310,970	303,270

2

Production budget:

Production budget:
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Sales in units	12,300	13,300	15,300	14,300
Add
Closing inventory	2,660	3,060	2,860	2660
	13300*20%	15300*20%	14300*20%
Required units	14,960	16,360	18,160	16,960
Less
Opening inventory	2460	2,660	3,060	2,860
Production	12,500	13,700	15,100	14,100

*Hope above explanation helps, please comment if further explanation is required. Your rating is appreciated*