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Item 2

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Required information

The Chapter 8 Form worksheet is to be used to create your own worksheet version of the Review Problem in the text.

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:

	Year 2 Quarter					Year 3 Quarter
Data	1	2	3	4		1	2
Budgeted unit sales	50,000	65,000	115,000	75,000		90,000	100,000
Selling price per unit	$7

A B C D E F G

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

Chapter 8: Applying Excel Data Year 3 Quarter 1 2 3 4 1 2 Budgeted unit sales 50,000 65,000 115,000 75,000 90,000 100,000 • Selling price per unit $7 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 material costs $0.80 per pound • 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

c. What is the total cost of raw materials to be purchased for the year under this revised budget?

d. What are the total expected cash disbursements for raw materials for the year under this revised budget?

Answer 1

Solution c:

Production Budget
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year	Quarter 1, next year
Budgeted sales unit	50000	65000	115000	75000	305000	90000
Add: ending inventory (30% of next quarter sales)	19500	34500	22500	27000	27000	30000
Less: Beginning inventory	12000	19500	34500	22500	12000	27000
Estimated production unit	57500	80000	103000	79500	320000	93000

Budgeted Cost of raw material purchases
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Budgeted Production units	57500	80000	103000	79500	320000
Raw material per unit (In Pounds)	5	5	5	5	5
Total requirement of raw materials	287500	400000	515000	397500	1600000
Add: Desired ending inventory (10% of next quarter production needs)	40000	51500	39750	46500	46500
Less: Beginning inventory	23000	40000	51500	39750	23000
Budgeted purchase units of raw material (In Pounds)	304500	411500	503250	404250	1623500
Raw material cost per pound	$0.80	$0.80	$0.80	$0.80	$0.80
Budgeted cost of purchases	$243,600.00	$329,200.00	$402,600.00	$323,400.00	$1,298,800.00

Solution d:

Schedule of expected cash disbursement for merchandise purchases
Particulars	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Year
Accounts Payable, Beginning	$81,500.00				$81,500.00
Q1 Purchases	$146,160.00	$97,440.00			$243,600.00
Q2 Purchases		$197,520.00	$131,680.00		$329,200.00
Q3 Purchases			$241,560.00	$161,040.00	$402,600.00
Q4 Purchases				$194,040.00	$194,040.00
Total payments	$227,660.00	$294,960.00	$373,240.00	$355,080.00	$1,250,940.00