Question

Bombs Away Video Games Corporation has forecasted the following monthly sales:

January	$	110,000	July	$	55,000
February		103,000	August		55,000
March		35,000	September		65,000
April		35,000	October		95,000
May		30,000	November		115,000
June		45,000	December		133,000
Total annual sales = $876,000

Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for $5 per unit and costs $2 per unit to produce. A level production policy is followed. Each month's production is equal to annual sales (in units) divided by 12.

Of each month's sales, 40 percent are for cash and 60 percent are on account. All accounts receivable are collected in the month after the sale is made.

a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is 35,000 units.

Bombs Away Video Games Corporation Production and Inventory Schedule in Units Ending Inventory Beginning Inventory 35,000 + Production Sales January February March April May June July August September October November December

b. Prepare a monthly schedule of cash receipts. Sales in December before the planning year are $100,000.

c. Prepare a cash payments schedule for January through December. The production costs of $2 per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $55,000 per month.

d. Prepare a monthly cash budget for January through December using the cash receipts schedule from part b and the cash payments schedule from part c. The beginning cash balance is $5,000, which is also the minimum desired. (Negative amounts should be indicated by a minus sign.)

Answer 1

We were given the sales value for each month, and were told that the sales price per unit = $5 so we can compute the unit sales by sales value/5

Month	$ sales	Unit sales
January	$1,10,000.00	22000
February	$1,03,000.00	20600
March	$   35,000.00	7000
April	$   35,000.00	7000
May	$   30,000.00	6000
June	$   45,000.00	9000
July	$   55,000.00	11000
August	$   55,000.00	11000
September	$   65,000.00	13000
October	$   95,000.00	19000
November	$1,15,000.00	23000
December	$1,33,000.00	26600
Total	$ 8,76,000.00	175200

Total unit sales = 175200 so monthly production = 175200/12 = 14600

Below is the monthly production and inventory schedule:

Month	Opening balance	Production	Sales	Closing balance
January	35000	14600	22000	27600
February	27600	14600	20600	21600
March	21600	14600	7000	29200
April	29200	14600	7000	36800
May	36800	14600	6000	45400
June	45400	14600	9000	51000
July	51000	14600	11000	54600
August	54600	14600	11000	58200
September	58200	14600	13000	59800
October	59800	14600	19000	55400
November	55400	14600	23000	47000
December	47000	14600	26600	35000

• Closing balance = Opening balance + Production - Sales
• Opening balance = Previous month's closing balance

Below is the cash receipts schedule:

Cash receipts schedule		Jan	Feb	Mar	Apr	May	Jun
Sales	Given	1,10,000.00	1,03,000.00	35,000.00	35,000.00	30,000.00	45,000.00
Cash receipts
Cash sales	40% x sales	44,000.00	41,200.00	14,000.00	14,000.00	12,000.00	18,000.00
Preveious month's credit sales	60% x previous month's sales	60,000.00	66,000.00	61,800.00	21,000.00	21,000.00	18,000.00
Total cash receipts		1,04,000.00	1,07,200.00	75,800.00	35,000.00	33,000.00	36,000.00
		Jul	Aug	Sep	Oct	Nov	Dec
Sales	Given	55,000.00	55,000.00	65,000.00	95,000.00	$ 1,15,000.00	$ 1,33,000.00
Cash receipts
Cash sales	40% x sales	22,000.00	22,000.00	26,000.00	38,000.00	46,000.00	53,200.00
Previous month's credit sales	60% x previous month's sales	27,000.00	33,000.00	33,000.00	39,000.00	57,000.00	69,000.00
Total cash receipts		49,000.00	55,000.00	59,000.00	77,000.00	1,03,000.00	1,22,200.00

Below is the cash payments schedule

Units produced every year is 14600 and therefore production cost = 2 x 14600 = 29200:

Cash payments schedule		Jan	Feb	Mar	Apr	May	Jun
Production cost	2 x units produced	29,200.00	29,200.00	29,200.00	29,200.00	29,200.00	29,200.00
Other cash payments	Given	55,000.00	55,000.00	55,000.00	55,000.00	55,000.00	55,000.00
Total cash receipts		84,200.00	84,200.00	84,200.00	84,200.00	84,200.00	84,200.00
		Jul	Aug	Sep	Oct	Nov	Dec
Production cost	2 x units produced	29,200.00	29,200.00	29,200.00	29,200.00	29,200.00	29,200.00
Other cash payments	Given	55,000.00	55,000.00	55,000.00	55,000.00	55,000.00	55,000.00
Total cash receipts		84,200.00	84,200.00	84,200.00	84,200.00	84,200.00	84,200.00

Below is the cash budget:

Cash budget	Remark	Jan	Feb	Mar	Apr	May	Jun
Beginning cash		5,000.00	24,800.00	47,800.00	39,400.00	5,000.00	5,000.00
Net cash flow	Total recipts- total payments	19,800.00	23,000.00	-8,400.00	-49,200.00	-51,200.00	-48,200.00
Cumulative cash balance	Beginning cash +Net cash flow	24,800.00	47,800.00	39,400.00	-9,800.00	-46,200.00	-43,200.00
Monthly loan or payment		-	-	-	14,800.00	51,200.00	48,200.00
Ending cash		24,800.00	47,800.00	39,400.00	5,000.00	5,000.00	5,000.00
Cumulative loan balance		-	-	-	14,800.00	66,000.00	1,14,200.00
	Remark	Jul	Aug	Sep	Oct	Nov	Total
Beginning cash	0	5,000.00	5,000.00	5,000.00	5,000.00	5,000.00	42,600.00
Net cash flow	Total recipts- total payments	-35,200.00	-29,200.00	-25,200.00	-7,200.00	18,800.00	38,000.00
Cumulative cash balance	Beginning cash +Net cash flow	-30,200.00	-24,200.00	-20,200.00	-2,200.00	23,800.00	80,600.00
Monthly loan or payment		35,200.00	29,200.00	25,200.00	7,200.00	-18,800.00	-75,600.00
Ending cash		5,000.00	5,000.00	5,000.00	5,000.00	42,600.00	1,56,200.00
Cumulative loan balance		1,49,400.00	1,78,600.00	2,03,800.00	2,11,000.00	1,92,200.00	1,16,600.00