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	12,200	13,200	15,200	14,200

The selling price of the company’s product is $21 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 $72,600.

The company expects to start the first quarter with 2,440 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 2,640 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.

           

References

Answer 1

• All working forms part of the answer
• Sales Budget

	Q1	Q2	Q3	Q4
Budgeted Unit Sales	12200	13200	15200	14200
Budgeted Sales price per unit	21	21	21	21
Total Budgeted Sales	$256200	$277200	$319200	$298200

• Cash Collection

Working - Amounts are in $

	Q1	Q2	Q3	Q4
Total Budgeted Sales	256200	277200	319200	298200
65% collection	166530	180180	207480	193830
30% collection	76860	83160	95760	89460

Total Cash Collection-Amounts are in $

	Q1	Q2	Q3	Q4
Cash collected from:
Accounts receivables	72600
Q1 Sale	166530	76860
Q2 Sale		180180	83160
Q3 Sale			207480	95760
Q4 Sale				193830
Total Collection in cash	239130	257040	290640	289590

• Production Budget

	Q1	Q2	Q3	Q4
Budgeted sale units	12200	13200	15200	14200
Add: desired ending inventory [20% of next quarter sale]	2640	3040	2840	[given] 2640
Total requirement	14840	16240	18040	16840
Less: Beginning inventory [=ending inventory of last quarter]	[given] 2440	2640	3040	2840
Units to be produced	12400	13600	15000	14000