Question

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	45,000	65,000	110,000	70,000		80,000	90,000
Selling price per unit	$7

A D E F G Chapter 8: Applying Excel 1 Data Year 3 Quarter 1 2 3 4 1 2 4 Budgeted unit sales 110,000 70,000 90,000 45,000 65,000 80,000 5 6 7 Selling price per unit Accounts receivable, beginning balance 9 . Sales collected in the quarter sales are made S 7 per unit S 65,000 8 75% Sales collected in the quarter after sales are made 25% 10 Desired ending finished goods inventory is 30% of the budgeted unit sales of the next quarter 12,000 units 11 Finished goods inventory, beginning Raw materials required to produce one unit Desired ending inventory of raw materials is 12 5 pounds 13 10% of the next quarter's production needs 14 Raw materials inventory, beginning 23,000 pounds 15 Raw material costs 0.80 per pound 16 Raw materials purchases are paid 60% in the quarter the purchases are made 40% in the quarter following purchase 81,500 17 and 18 19Accounts payable for raw materials, beginning balance

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

b. What is the total required production for the year under this 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 production manager cautioned that due to the current production constraint, a complex milling machine, the plant can produce no more than 80,000 units in any one quarter. Is this a potential problem?

• No

• Yes

Answer 1

		Year 2 Quarter
a	Description	1	2	3	4	Total
	Budgeted sales (in units)	45000	65000	110000	70000	290000
	Budgeted sales revenue ($7 per unit)	$315000	$455000	$770000	$490000	$2030000
	Cash collection at 75% in current Quarter	$236250	$341250	$577500	$367500	$1522500
	Cash collection at 25% in previous Quarter	$65000	$78750	$113750	$192500	$450000
	Total cash collection from sales	$301250	$420000	$691250	$560000	$1972500
	Given opening accounts receivable = $65000, cash collected in quarter 1 year 2
b	Total budgeted production for the year under the revised budget
		Year 2 Quarter				Year 3 Quarter
	Description	1	2	3	4	1	Total year 2
	Budgeted sales (in units)   (A)	45000	65000	110000	70000	80000	290000
	Closing finished goods inventory (30% of next sales) (B)	19500	33000	21000	24000	27000	97500
	Opening finished goods inventory ©	12000	19500	33000	21000	24000	85500
	Budgeted production in units (A+B-C)	52500	78500	98000	73000	83000	302000
	Given opening finished goods inventory 12000 units
c	Total cost of raw material purchased for the year under the revised budget
		Year 2 Quarter				Year 3 Quarter
	Description	1	2	3	4	1	Total year 2
	Budgeted production (in units) (A)	52500	78500	98000	73000	83000	302000
	Raw material required in production (5 pounds per unit)   (B)	262500	392500	490000	365000	415000	1510000
	Closing raw material inventory (10% of next production)   ©	39250	49000	36500	41500	-	166250
	Opening raw material inventory (D)	23000	39250	49000	36500	-	147750
	Budgeted purchase of raw material   (B+C-D)= E	278750	402250	477500	370000	-	1528500
	Raw material cost (0.8 per pound) (E*.80)	$223000	$321800	$382000	$296000	-	$1222800
	Given opening raw material inventory 23000 units
d		Year 2 Quarter
	Description	1	2	3	4	Total
	Budgeted purchase of raw material    (A)	278750	402250	477500	370000	1528500
	Raw material cost (0.8 per pound) (B)	$223000	$321800	$382000	$296000	$1222800
	Cash payment for the current purchase (at 60%) ©	$133800	$193080	$229200	$177600	$733680
	cash payment for the last quarter (at 40%) (D)	$81500	$89200	$128720	$152800	$452220
	cash disbursement for raw material purchase (C+D)	$215300	$282280	$357920	$330400	$1185900
	Given opening account payable balance $81500
e	Yes,
	Total expected cash collection for the year is $1972500
	Total required production for the year 302000 units
	Total cost of raw material to be purchased for the year is $1222800
	Expected cash disbursement for raw material for the year si $1185900