Bombs Away Video Games Corporation has forecasted the following monthly sales: B
ID: 2430427 • Letter: B
Question
Bombs Away Video Games Corporation has forecasted the following monthly sales:
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, 30 percent are for cash and 70 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 37,000 units.
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 $57,000 per month.
d. Prepare a monthly cash budget for January through December using the cash receipts schedule from part band 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.)
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January $ 112,000 July $ 57,000 February 105,000 August 57,000 March 37,000 September 67,000 April 37,000 October 97,000 May 32,000 November 117,000 June 47,000 December 135,000 Total annual sales = $900,000Explanation / Answer
(a) Annual sales = $900,000
Selling price per unit = $5
Hence, number of units to be sold in a year = 900,000/5
= 180,000
Monthly production = Annual sales/12
= 180,000/12
= 15,000 units
Monthly production and inventory schedule
(b) Schedule of cash receipts
(c) Cash payment schedule
(d) Cash Budget
From January to December
It has been assumed that shortage of cash was met by taking loan from bank.
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Month Sales($) Sales(Units) Begining inventory Production Ending inventory January 112,000 22,400 37,000 15,000 29,600 February 105,000 21,000 29,600 15,000 23,600 March 37,000 7,400 23,600 15,000 31,200 April 37,000 7,400 31,200 15,000 38,800 May 32,000 6,400 38,800 15,000 47,400 June 47,000 9,400 47,400 15,000 53,000 July 57,000 11,400 53,000 15,000 56,600 August 57,000 11,400 56,600 15,000 60,200 September 67,000 13,400 60,200 15,000 61,800 October 97,000 19,400 61,800 15,000 57,400 November 117,000 23,400 57,400 15,000 49,000 December 135,000 27,000 49,000 15,000 37,000