Question

Exercise 8-14 Sales and Production Budgets [L08-2, LO8-3] The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 13, 600 Budgeted unit sales 12,600 15, 600 14,600 The selling price of the company's product is $25 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 $73,400. The company expects to start the first quarter with 2,520 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 2,720 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.

Sales Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total
Sales units	12600	13600	15600	14600	56400
Sales price per unit	$            25.00	$              25.00	$              25.00	$           25.00
Sales amount	$       3,15,000	$         3,40,000	$        3,90,000	$      3,65,000	$       14,10,000

2.

Cash Collections
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Sales	$       3,15,000	$         3,40,000	$        3,90,000	$      3,65,000
Cash Collections
Accounts Receivable	$          73,400
From Current Quarter Sales (65%)	$       2,04,750	$         2,21,000	$        2,53,500	$      2,37,250
From Previous Quarter Sales (30%)		$            94,500	$        1,02,000	$      1,17,000
Total Cash Collections	$       2,78,150	$         3,15,500	$        3,55,500	$      3,54,250

3.

Production Budget
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Sales units	12600	13600	15600	14600
Add : Closing Stock Required	2720	3120	2920	2720
Total Goods Required	15320	16720	18520	17320
Less : Opening Stock	2520	2720	3120	2920
Production Required	12800	14000	15400	14400

Desired Ending Inventory = 20% of next quarter sales