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Front Page Video Games Corporation has forecasted the following monthly sales:   January $100,000   July $45,000     February...

Front Page Video Games Corporation has forecasted the following monthly sales:

  January $100,000   July $45,000  
  February 93,000   August 45,000
  March 25,000   September 55,000
  April 25,000   October 85,000
  May 20,000   November 105,000
  June 35,000   December 123,000
  Total sales = $756,000

The firm sells its Last Spike video game for $5 per unit, and the cost to produce the game is $2 per unit. A level production policy is followed. Each month's production is equal to annual sales (in units) divided by 12.

Of each month's sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.

a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is 25,000 units. (Note: To do part a, you should work in terms of units of production and units of sales.)

Front Page Video Games Corporation
Production and inventory schedule in units
Beginning
inventory
+   Production –   Sales =   Ending
inventory
  January 25,000   +      –      =     
  February    +      –      =     
  March    +      –      =     
  April    +      –      =     
  May    +      –      =     
  June    +      –      =     
  July    +      –      =     
  August    +      –      =     
  September    +      –      =     
  October    +      –      =     
  November    +      –      =     
  December    +      –      =     


b. Prepare a monthly schedule of cash receipts. Sales in the December before the planning year were $100,000. Work part b using dollars.

  

  Front Page Video Games Corporation
January February March April May June
  Sales $    $    $    $    $    $   
  Cash sales                  
  Prior month’s sales                  
  Total cash receipts $    $    $    $    $    $   
Front Page Video Games Corporation
July August September October November December
  Sales $    $    $    $    $    $   
  Cash sales                  
  Prior month’s sales                  
  Total cash receipts $    $    $    $    $    $   

c. Determine a cash payments schedule for January through December. The production costs of $2 per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $45,000 per month.

  

Front Page Video Games Corporation
Constant production
January February March April May June
  Production cost $    $    $    $    $    $   
  Other cash payments                  
  Total cash payments $    $    $    $    $    $   
Front Page Video Games Corporation
Constant production
July August September October November December
  Production cost $    $    $    $    $    $   
  Other cash payments                  
  Total cash payments $    $    $    $    $    $   

d. Prepare a monthly cash budget for January through December. The beginning cash balance is $5,000, and that is also the minimum desired. (Do not leave any empty spaces; input a 0 wherever it is required. Negative answers and amounts to be deducted should be indicated by a minus sign.)

Front Page Video Games Corporation
January February March April May June
  Net cash flow $    $    $    $    $    $   
  Beginning cash                  
  Cumulative cash balance $    $    $    $    $    $   
  Monthly loan or (repayment)                  
  Cumulative loan                  
  Ending cash balance $    $    $    $    $    $   
Front Page Video Games Corporation
July August September October November December
  Net cash flow $    $    $    $    $    $   
  Beginning cash                  
  Cumulative cash balance $    $    $    $    $    $   
  Monthly loan or (repayment)                  
  Cumulative loan                  
  Ending cash balance $    $    $    $    $    $   

Solutions

Expert Solution

Answer a.

Answer b.

Answer c.

Answer d.


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