Question

The comlany 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.

a. What are the total expevted cash collections for the year under the revised budget?

b. What is the total required production for the year under the revised budget?

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?

e. After seeing this revised budget, the peoduction manager cautioned that due to the current production constraint, a complex milling machine, the plant can produce no more than 90,000 units in any one quarter. Is this a potential problem?

Year 2 Quarter r 3 Quarter 4 2 geted unit sales ling price per unit 45,000 65,000 120,000 70,000 85,000 100,000 $7 per unit Chapter 7: Applying Excel Year 3 Quarter Year 2 Quarter 2 65,000 3 Data Budgeted unit sales 45,000 120,000 70,000 85,000 100,000 7Selling price per unit $8 per unit Accounts receivable, beginning balance $65,000 Sales collected in the quarter sales are made 0Sales collected in the quarter after sales are made 11Desired ending finished goods inventory l 2 Finished goods inventory, beginning 75% 25% 30% of the budgeted unit sales of the next quarter 12,000 units 5 pounds w materials required to produce one unit 10% of the next quarter's production needs 23.000 pounds 4Desired ending inventory of raw materials is 15Raw materials inventory, beginning 16 Raw material costs 0.80 per pound 17 Raw materials purchases are paid 18 and 60% in the quarter the purchases are made 40% in the quarter following purchase 19 Accounts payable for raw materials, beginning balance$81,500 20

Answer 1

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Part a		Year 1					Year 2
		Q1	Q2	Q3	Q4	Year 1	Q1	Q2
Budgeted Sales unit		45,000	65,000	120,000	70,000	300,000	85,000	100,000
Budgeted Selling price		$            7	$            7	$           7	$           7	$               7	$            7	$           7
Budgeted Sales		$315,000	$455,000	$840,000	$490,000	$2,100,000	$595,000	$700,000
	75%
	25%
Quarter 1 Sale		$236,250	$ 78,750			$   315,000
Quarter 2 Sale			$341,250	$113,750		$   455,000
Quarter 3 Sale				$630,000	$210,000	$   840,000
Quarter 4 Sale					$367,500	$   367,500
Accounts Receivable		$ 65,000				$     65,000
Total Collection		$301,250	$420,000	$743,750	$577,500	$2,042,500
Part b
		Year 1					Year 2
		Q1	Q2	Q3	Q4	Year 1	Q1	Q2
Budgeted sales unit		45,000	65,000	120,000	70,000	300,000	85,000	100,000
Add: Desired Ending Inventory	30%	19,500	36,000	21,000	25,500	25,500	30,000
Total needs		64,500	101,000	141,000	95,500	325,500	115,000
Less:Beginning Inventory		-12,000	-19,500	-36,000	-21,000	-12,000	-25,500
Budgeted Production		52,500	81,500	105,000	74,500	313,500	89,500
Part c
		Year 1					Year 2
		Q1	Q2	Q3	Q4	Year 1	Q1	Q2
Budgeted Production		52,500	81,500	105,000	74,500	313,500	89,500
Raw Material required per unit		5	5	5	5	5	5
Total Raw material needed		262,500	407,500	525,000	372,500	1,567,500	447,500
Add: Desired Ending Inventory	10%	40,750	52,500	37,250	44,750	44,750
Total needs		303,250	460,000	562,250	417,250	1,612,250
Less:Beginning Inventory		-23,000	-40,750	-52,500	-37,250	-23,000
Budgeted Purchase		280,250	419,250	509,750	380,000	1,589,250
Raw material cost per unit		$       0.80	$       0.80	$      0.80	$      0.80	$          0.80
Cost of Raw material Purchase		$224,200	$335,400	$407,800	$304,000	$1,271,400
Part d		Year 1
		Q1	Q2	Q3	Q4	Year 1
	60%
	40%
Quarter 1 Pur		$134,520	$ 89,680			$   224,200
Quarter 2 Pur			$201,240	$134,160		$   335,400
Quarter 3 Pur				$244,680	$163,120	$   407,800
Quarter 4 Pur					$182,400	$   182,400
Accounts Payable		$ 81,500				$     81,500
Total Collection		$216,020	$290,920	$378,840	$345,520	$1,231,300
Part e
Yes, Since in Q3 production needed is more than 90,000