Exercise 8-14 Sales and Production Budgets [LO8-2, LO8-3]

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

The selling price of the company’s product is $18.00 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 $70,200.

The company expects to start the first quarter with 1,650 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,850 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

The selling price of the company’s product is $18 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 $72,000.

The company expects to start the first quarter with 1,785 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,985 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows: Endless Mountain Company Balance Sheet December 31, 2016 Assets Current assets: Cash $ 46,200 Accounts receivable (net) 260,000 Raw materials inventory (4,500 yards) 11,250 Finished goods inventory (1,500 units) 32,250 Total current assets $ 349,700 Plant and equipment: Buildings and equipment 900,000 Accumulated depreciation (292,000 ) Plant and equipment, net 608,000 Total assets $ 957,700 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 158,000 Stockholders’ equity: Common stock $ 419,800 Retained earnings 379,900 Total stockholders’ equity 799,700 Total liabilities and stockholders’ equity $ 957,700 The company’s chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2017 budget: The budgeted unit sales are 12,000 units, 37,000 units, 15,000 units, and 25,000 units for quarters 1-4, respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $32 per unit. The budgeted unit sales for the first quarter of 2018 is 13,000 units. All sales are on credit. Uncollectible accounts are negligible and can be ignored. Seventy-five percent of all credit sales are collected in the quarter of the sale and 25% are collected in the subsequent quarter. Each quarter’s ending finished goods inventory should equal 15% of the next quarter’s unit sales. Each unit of finished goods requires 3.5 yards of raw material that costs $3.00 per yard. Each quarter’s ending raw materials inventory should equal 10% of the next quarter’s production needs. The estimated ending raw materials inventory on December 31, 2017 is 5,000 yards. Seventy percent of each quarter’s purchases are paid for in the quarter of purchase. The remaining 30% of each quarter’s purchases are paid in the following quarter. Direct laborers are paid $18 an hour and each unit of finished goods requires 0.25 direct labor-hours to complete. All direct labor costs are paid in the quarter incurred. The budgeted variable manufacturing overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhead is $150,000 including $20,000 of depreciation on equipment. The number of direct labor-hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs (excluding depreciation) are paid in the quarter incurred. The budgeted variable selling and administrative expense is $1.25 per unit sold. The fixed selling and administrative expenses per quarter include advertising ($25,000), executive salaries ($64,000), insurance ($12,000), property tax ($8,000), and depreciation expense ($8,000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred. The company plans to maintain a minimum cash balance at the end of each quarter of $30,000. Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The company’s lender imposes a simple interest rate of 3% per quarter on any borrowings. Dividends of $15,000 will be declared and paid in each quarter. The company uses a last-in, first-out (LIFO) inventory flow assumption. This means that the most recently purchased raw materials are the “first-out” to production and the most recently completed finished goods are the “first-out” to customers. 2. Prepare a budgeted variable costing income statement for 2017. Stop your computations at net operating income.

Exercise 8-14 Sales and Production Budgets [LO8-2, LO8-3]

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

The selling price of the company’s product is $24 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 $73,200.

The company expects to start the first quarter with 2,500 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 2,700 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

Requirement 2

Requirement 3

A) Moriarity Company has budgeted the following unit sales:

1^st Quarter 2019 7,000
2^nd Quarter 2019 3,000
3rd Quarter 2019 4,000

Beginning finished goods for the first quarter was 1,400 units. The company's policy is to maintain an inventory of finished goods as 20% of the next quarter sales. The production budget for the SECOND quarter is __________. (no dollar signs, decimals or commas) HINT: you must calculate the first quarter in order to calculate the 2nd quarter.

B)JTS Corp had the following production budget:

1st Quarter 2019 8.000 units
2nd Quarter 2019 9,000 units

Each unit requires 4 pounds of raw materials at $2 per pound. JTS wants a raw materials inventory of 40% of the next months raw materials (the same percentage was used in 2018). The raw materials budget for the first quarter of 2019 is _______________. (no dollar signs, commas or decimals)

C) Shadwell Company has budgeted the following unit sales:

1^st Quarter 2019                        10.000 units
2^nd Quarter 2019                       7,000 units

It also had the following production budget:

1st Quarter 2019 12,000 units
2nd Quarter 2019 8,000 units

Each unit requires 6 pounds of raw materials at $3 per pound. Each unit requires 1.5 hours of direct labor at $20 per hour. Manufacturing overhead is 60% of direct labor cost.

Cost of goods sold for Shadwell Company for the 2nd quarter is ____________. (no dollar signs, commas nor decimals).

Rundle Company sells lamps and other lighting fixtures. The purchasing department manager prepared the following inventory purchases budget. Rundle’s policy is to maintain an ending inventory balance equal to 15 percent of the following month’s cost of goods sold. April’s budgeted cost of goods sold is $83,000.

Required

1. Complete the inventory purchases budget by filling in the missing amounts.

2. Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement.

3. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.

Complete the inventory purchases budget by filling in the missing amounts.

Determine the amount of cost of goods sold the company will report on its first quarter pro forma income statement. Determine the amount of ending inventory the company will report on its pro forma balance sheet at the end of the first quarter.

E7-19 (Algo) Analyzing and Interpreting the Impact of an Inventory Error LO7-7

Grants Corporation prepared the following two income statements (simplified for illustrative purposes):

During the third quarter, it was discovered that the ending inventory for the first quarter should have been $4,190.

Required:

1. What effect did this error have on the combined pretax income of the two quarters?

2. Which quarter's or quarters' (if any) EPS amounts were affected by this error?

3. Prepare corrected income statements for each quarter.

4. Prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement.

1. What effect did this error have on the combined pretax income of the two quarters?

2. Which quarter's or quarters' (if any) EPS amounts were affected by this error?

3. Prepare corrected income statements for each quarter.

4.Prepare the schedule to reflect the comparative effects of the correct and incorrect amounts on the income statement.

Endless Mountain Company manufactures a single product that is popular with outdoor recreation enthusiasts. The company sells its product to retailers throughout the northeastern quadrant of the United States. It is in the process of creating a master budget for 2017 and reports a balance sheet at December 31, 2016 as follows:

The company’s chief financial officer (CFO), in consultation with various managers across the organization has developed the following set of assumptions to help create the 2017 budget:

The budgeted unit sales are 12,000 units, 37,000 units, 15,000 units, and 25,000 units for quarters 1-4, respectively. Notice that the company experiences peak sales in the second and fourth quarters. The budgeted selling price for the year is $32 per unit. The budgeted unit sales for the first quarter of 2018 is 13,000 units.

All sales are on credit. Uncollectible accounts are negligible and can be ignored. Seventy-five percent of all credit sales are collected in the quarter of the sale and 25% are collected in the subsequent quarter.

Each quarter’s ending finished goods inventory should equal 15% of the next quarter’s unit sales.

Each unit of finished goods requires 3.5 yards of raw material that costs $3.00 per yard. Each quarter’s ending raw materials inventory should equal 10% of the next quarter’s production needs. The estimated ending raw materials inventory on December 31, 2017 is 5,000 yards.

Seventy percent of each quarter’s purchases are paid for in the quarter of purchase. The remaining 30% of each quarter’s purchases are paid in the following quarter.

Direct laborers are paid $18 an hour and each unit of finished goods requires 0.25 direct labor-hours to complete. All direct labor costs are paid in the quarter incurred.

The budgeted variable manufacturing overhead per direct labor-hour is $3.00. The quarterly fixed manufacturing overhead is $150,000 including $20,000 of depreciation on equipment. The number of direct labor-hours is used as the allocation base for the budgeted plantwide overhead rate. All overhead costs (excluding depreciation) are paid in the quarter incurred.

The budgeted variable selling and administrative expense is $1.25 per unit sold. The fixed selling and administrative expenses per quarter include advertising ($25,000), executive salaries ($64,000), insurance ($12,000), property tax ($8,000), and depreciation expense ($8,000). All selling and administrative expenses (excluding depreciation) are paid in the quarter incurred.

The company plans to maintain a minimum cash balance at the end of each quarter of $30,000. Assume that any borrowings take place on the first day of the quarter. To the extent possible, the company will repay principal and interest on any borrowings on the last day of the fourth quarter. The company’s lender imposes a simple interest rate of 3% per quarter on any borrowings.

Dividends of $15,000 will be declared and paid in each quarter.

The company uses a last-in, first-out (LIFO) inventory flow assumption. This means that the most recently purchased raw materials are the “first-out” to production and the most recently completed finished goods are the “first-out” to customers.

Create:

1.Ending Finished Goods inventory budget (absorption costing basis) For year end December 2017

2. Quarterly Cash budget for Year ended dec 31, 2017

3. Budgeted Balance Sheet at Dec 31, 2017

Sales Budget FlashKick Company manufactures and sells soccer balls for teams of children in elementary and high school. FlashKick’s best-selling lines are the practice ball line (durable soccer balls for training and practice) and the match ball line (high-performance soccer balls used in games). In the first four months of next year, FlashKick expects to sell the following: ____________Practice Balls_______________ Match Balls

_______Units_________ Selling Price________ Units _________Selling Price

January ____50,000 ______$8.25____________ 7,000 _________$16.00

February___ 58,000______ $8.25____________ 7,500_________ $16.00

March _____80,000______ $8.25 ___________13,000 _________$16.00

April______ 100,000_____ $8.25___________ 18,000_________ $16.00

Required:

1. Construct a sales budget for FlashKick for the first three months of the coming year. Show total sales for each product line by month and in total for the first quarter. If required, round your answers to the nearest cent.

FlashKick Company

Sales Budget

For the First Quarter of Next Year

____________January__________ February_________ March_______ Quarter

Practice ball: Units________?________?______________?_____________?

Unit price________ $ ______________$ ______________$ ____________$

Sales___________ $ ______________$______________ $____________ $

Match ball: Units___?______________?_______________?____________?

Unit price________ $_____________ $_______________ $____________ $

Sales ___________$ _____________$_______________ $____________ $

Total sales_______ $_____________ $_______________ $____________ $

2. What if FlashKick added a third line—tournament quality soccer balls that were expected to take 40 percent of the units sold of the match balls and would have a selling price of $45 each in January and February, and $48 each in March?

Prepare a sales budget for FlashKick for the first three months of the coming year. Show total sales for each product line by month and in total for the first quarter. If required, round your answers to the nearest cent.

FlashKick Company

Sales Budget

For the First Quarter

__________January_______ February________ March _____Quarter

Practice ball: Units______?______?_____________?__________?

Unit price_____ $_____________ $_____________ $_________ $

Sales ________$ _____________$ _____________$ _________$

Match ball: Units_____?________?______________?_________?

Unit price_________ $_________ $_____________ $_________ $

Sales ____________$ _________$_____________$ __________$

Tournament ball:

Units____________?__________?______________?__________?

Unit price________ $_________ $______________ $_________ $

Sales___________ $_________ $______________ $_________ $

Total sales _______$ _________$ ______________$ _________$