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	12,800	13,800	15,800	14,800

The selling price of the company’s product is $27 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 $73,800.

The company expects to start the first quarter with 2,560 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 2,760 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

Budgeted units sales Selling price Budgeted sales 1. Total sales 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Year 12,800 13,800 15,800 14,800 57,200 $ 27 $ 27 $ 27 $ 27$ 27 | $ 345,600 $ 372,600 $ 426,600 $ 399,600 $ 1,544,400 Beginning accounts receivable 1st Quarter sales 2nd Quarter sales 3rd Quarter sales 4th Quarter sales Total cash collections 2. Expected cash collections Sales 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter $ 73,800 $ 345,600 $ 224,640 $ 67,392 $ 372,600 $ 242,190 $ 111,780 $ 426,600 $ 277,290 $ 127,980 $ 399,600 $ 259,740 $ 298,440 $ 309,582 $ 389,070 $ 387,720 Year $ 73,800 $ 292,032 (Sales * 65%) & (Sales * 30%) 353,970 (Sales * 65%) & (Sales * 30%) $ 405,270 (Sales * 65%) & (Sales * 30%) $ 259,740 (Sales *65%) $ 1,384,812 Budgeted unit sales Add: Desired ending inventory Total needs Less: Beginning inventory Production Budget (units) 3. Production Budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 12,800 13,800 15,800 14,800 2,760 3,160 2,960 2,760 15,560 16,960 18,760 17,560 2,560 2,760 3,160 2,960 13,000 14,200 15,600 14,600 Year 57,200 2,760 (20% of next quarters budgeted units sales) 59,960 2,560 57,400

Answer 2

2nd quarter cash collections are incorrect and should be $345870.

Calculated as 30% of cash from last period + 65% of cash from current period.