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	11,400	12,400	14,400	13,400

The selling price of the company’s product is $13 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 $71,000.

The company expects to start the first quarter with 1,710 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,910 units.

Required:

1-a. Compute the company’s total sales.

1-b. Complete the schedule of expected cash collections.

2. Prepare the company’s production budget for the upcoming fiscal year.

Answer 1

1-a)
	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total Year
Budgeted unit sales (a)	11,400	12,400	14,400	13,400	51,600
Selling price per unit (b)	$13	$13	$13	$13	$13
Budgeted total sales (a*b)	$148,200	$161,200	$187,200	$174,200	$670,800
Therefore, company's total sales is $670,800.

1-b)	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total Year
Expected cash collections:
Cash collections from accounts receivable	$71,000				$71,000
Cash collections from Quarter 1 ($148,200*65/100); ($148,200*30/100)	$96,330	$44,460			$140,790
Cash collections from Quarter 2 ($161,200*65/100); ($161,200*30/100)		$104,780	$48,360		$153,140
Cash collections from Quarter 3 ($187,200*65/100); ($187,200*30/100)			$121,680	$56,160	$177,840
Cash collections from Quarter 4 ($174,200*65/100)				$113,230	$113,230
Total Cash Collections	$167,330	$149,240	$170,040	$169,390	$656,000

2)	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Total Year
Budgeted unit sales	11,400	12,400	14,400	13,400	51,600
Add: Desired ending inventory (12,400*15/100); (14,400*15/100); (13,400*15/100)	1,860	2,160	2,010	1,910	7,940
Total Finished Goods Inventory Required	13,260	14,560	16,410	15,310	59,540
Less: Beginning balance in Finished Goods Inventory in units (Last quarter ending inventory will be the beginning inventory in next quarter)	1,710	1,860	2,160	2,010	7,740
Budgeting Production for the upcoming fiscal year (Units required to produce)	11,550	12,700	14,250	13,300	51,800