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	12,300	13,300	15,300	14,300

The selling price of the company’s product is $22 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 $72,800.

The company expects to start the first quarter with 2,460 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 2,660 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. Estimated sales

	I	II	III	IV
Unit sales	12300	13300	15300	14300
Selling price	$22	$22	$22	$22
Sales (in$)	$270600	$292600	$336600	$314600

Total sales units= 55200

Total sales= $1214400

2. Collections

	I	II	III	IV
75% same qtr	$202950	$219450	$252450	$235950
20% following qtr	$72800 (opening balance)	$54120	$58520	$67320

Total collections during the year= $1163560

3. Production

	I	II	III	IV
Sales	12300	13300	15300	14300
Add: closing stock	2660	3060	2860	2660
Less: opening stock	2460	2660	3060	2860
Production	12500	13700	15100	14100

Total production during the yr

=55400 units

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