Question

Requirement 2:

The company has just hired a new marketing manager who insists that unit sales can be dramatically increased by dropping the selling price from $8 to $7. The marketing manager would like to use the following projections in the budget:

  

Data	Year 2 Quarter				Year 3 Quarter
	1	2	3	4	1	2
Budgeted unit sales	45,000	70,000	110,000	70,000	85,000	90,000
Selling price per unit	$7	per unit

Data	Year 2 Quarter				Year 3 Quarter
	1	2	3	4	1	2
Budgeted Unit Sales	45,000	70,000	110,000	70,000	85,000	90,000
selling price per unit	$8 per unit
Accounts receivable, beginning balance	$65,000
sales collected in the quarter sales are made	75%
sales collected in the quarter after sales are made	25%
desired ending finished goods inventory is	30% of the budgeted unit sales of the next quarter
finished goods inventory, beginning	12,000 units
raw materials required to produce one unit	5 pounds
desired ending inventory of raw materials is	10% of the next quarter's production needs
raw materials inventory, beginning	23,000 pounds
raw materials cost	$0.80
raw materials purchases are paid	60% in the quarter the purchases are made
and	40% in the quarter following purchase
accounts payable for raw materials, beginning balance	$81,500

What are the total expected cash collections for the year under this revised budget?

What is the total required production for the year under this revised budget? What is the total cost of raw materials to be purchased for the year under this revised budget? What are the total expected cash disbursements for raw materials for the year under this revised budget? After seeing this revised budget, the production manager cautioned that due to the current production constraint, a complex milling machine, the plant can produce no more than 80,000 units in any one quarter. Is this a potential problem?

Answer 1

						Year 3
Sales Budget	First Qtr	Second Qtr	Third qtr	Fourth Qtr	Total	1	2
Sales in units A	45000	70000	110000	70000	295000	85000	90000
Sales price	7	7	7	7	7
Total sales S	315000	490000	770000	490000	2065000
Collected in the same month (75%*current month sales))	236250	367500	577500	367500	1548750
Collected in next month (25% of prevous month sales)	65000	78750	122500	192500	458750
Answer A Total expected cash collection	301250	446250	700000	560000	2007500
answer 2
Production Budget	First Qtr	Second Qtr	Third qtr	Fourth Qtr	Total	Year 3
						1	2
Units to be sold S	45000	70000	110000	70000	295000	85000	90000
Closing Inventory 30% of next month sales S*30%	21000	33000	21000	25500	25500	27000
Total Finised Goods	66000	103000	131000	95500	320500	112000
Less: Beginning Inventory	12000	21000	33000	21000	12000	25500
Ans b Total required production	54000	82000	98000	74500	308500	86500
ans c
Direct Material Purcahse Budget
	First Qtr	Second Qtr	Third qtr	Fourth Qtr	Total	Year 3 1
Ans b Total required production	54000	82000	98000	74500	308500	86500
No. of poundes required	5	5	5	5	5	5
Total poundes required	270000	410000	490000	372500	1542500	432500
Closing Inventory 10% of next month poundes required S*10%	41000	49000	37250	43250	43250
Total Raw material Inventory	365005	541005	625255	490255	1894255
Less: Beginning Inventory	23000	41000	49000	37250	23000
Raw Material to be purchased	342005	500005	576255	453005	1871255
Direct Material cost per unit	$0.8	$0.8	$0.8	$0.8	$0.8
ans c Total cost of raw material to be purchased	$273,604	$400,004	$461,004	$362,404	$1,497,004
ans d
Schedule of Expected Cash Disbursements- Merchandise Purchases
	First Qtr	Second Qtr	Third qtr	Fourth Qtr	Total
Payment in curent month (60%*current month purchases)	$164,162	$240,002	$276,602	$217,442	$898,202
Payment OF prior month (40%*LAST MONTH PURCHASES)	$81,500	$109,442	$160,002	$184,402	$535,345
Total Disbursements	$245,662	$349,444	$436,604	$401,844	$1,433,554
ANS E There is potential problem for third qtr as production required is 98000 units which is more than
80000 units