Question

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	12,400	13,400	15,400	14,400

The selling price of the company’s product is $23 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 $73,000.

The company expects to start the first quarter with 2,480 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 2,680 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.

Answer 1

1) Calculation of the estimated sales for each quarter of the fiscal year and for the year as a whole

Particulars	(a) 1st Quarter	(b) 2nd Quarter	(c) 3rd Quarter	(d) 4th Quarter	(e) Year
(A) Budgeted unit sales	12,400	13,400	15,400	14,400
(Y) Budgeted units for the year (a + b + c + d)					55,600
B) Sales in $ (A x $23)	285,200	308,200	354,200	331,200
(Z) Sales in $ for the year (Y x $23)					1,278,800

2) Calculation the expected cash collections for each quarter of the fiscal year and for the year as a whole

Particulars	(a) 1st Quarter	(b) 2nd Quarter	(c) 3rd Quarter	(d) 4th Quarter	(e) Year (a + b + c + d)
(A) Budgeted sales ($)	285,200	308,200	354,200	331,200
(B) Collection from sales of this quarter ($) [65% of A]	185,380	200,330	230,230	215,280
(C) Opening Balance of Accounts Receivable ($) [35% of (Budgeted Sales of earlier quarter)]	73,000	99,820	123,970	115,920
(D) Collection from sales of the earlier quarter ($) [C x 30/35]	62,571.43	85,560	106,260	99,360
(E) Total collection in $ (B + D)	247,951.43	285,890	336,490	314,640
(F) Total collection for the year in $ ( a + b + c + d )					1,184,971.43

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

Particulars	(a) 1st quarter	(b) 2nd quarter	(c) 3rd quarter	(d) 4th quarter	(e) Year
(A) Budgeted unit sales	12,400	13,400	15,400	14,400
(B) Closing inventory of finished goods (20% of [Next quarter's budgeted sales units)]	2,680	3,080	2,880	2,680
(C) Opening inventory of finished goods	2,480	2,680	3,080	2,880
(D) production in units of finished goods (A + B - C)	12,600	13,800	15,200	14,200
(E) Production in units of finished goods for the year (a + b + c + d)					55,800