The company has just hired a new marketing manager who insists that unit sales c
ID: 2523979 • Letter: T
Question
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:
What are the total expected cash collections for the year under this revised budget?
What is the total required production for the year under this revised budget?
What is the total cost of raw materials to be purchased for the year under this revised budget?
What are the total expected cash disbursements for raw materials for the year under this revised budget?
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?
Data Year 2 Quater Year 3 Quater 1 2 3 4 1 2 50,000 70,000 110,000 75,000 Budgeted unit sales 80,000 90,000 Selling price per unit $7 per unit 1 Chapter 7: Applying Excel 2 3 Data Year 2 Quarter 2 70,000 Year 3 Quarter 4 75,000 2 90,000 50,000 110,000 80,000 5 Budgeted unit sales 6 7Selling price per unit 8Accounts receivable, beginning balance 9. Sales collected in the quarter sales are made 10.Sales collected in the quarter after sales are made 11. Desired ending finished goods inventory is 12. Finished goods inventory, beginning 13 Raw materials required to produce one unit 14. Desired ending inventory of raw materials is 15. Raw materials inventory, beginning 16Raw material costs 17. Raw materials purchases are paid 18 and 19 Accounts payable for raw materials, beginning balance 20 S8 per unit $65,000 75% 25% 30% of the budgeted unit sales of the next quarter 12,000 units 5 pounds 10% of the next quarter's production needs 23,000 pounds $0.80 per pound 60% in the quarter the purchases are made 40% in the quarter following purchase $81,500Explanation / Answer
Requirement a Total expected cash collecion for the year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Annual Selling price per unit 7 7 7 7 7 Total Sales Revenue 350000 490000 770000 525000 2135000 Cash collection from customers Accounts Receivable-beg. Balance 65000 65000 From sales made in Quarter 1 262500 87500 350000 From sales made in Quarter 2 367500 122500 490000 From sales made in Quarter 3 577500 192500 770000 From sales made in Quarter 4 393750 393750 Requirement a) Total expected cash collection 327500 455000 700000 586250 2068750 Requirement b) The total required production for the year under this revised budget 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Annual Budgeted sales units 50000 70000 110000 75000 305000 Add : Closing Inventory 21000 33000 22500 24000 24000 Total 71000 103000 132500 99000 329000 Less : Opening inventory 12000 21000 33000 22500 12000 Requirement b) Required production 59000 82000 99500 76500 317000 Requirement c) Cost of raw material to be purchased for the year under this revised budget. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Annual Required production 59000 82000 99500 76500 317000 Raw material required per unit 295000 410000 497500 382500 1585000 Add : closing raw materials inventory 41000 49750 38250 41500 41500 Total Raw material needed 336000 459750 535750 424000 1626500 Less : Opening stock of raw materials 23000 41000 49750 38250 23000 Total raw material required 313000 418750 486000 385750 1603500 Raw materials cost per pound 0.8 0.8 0.8 0.8 0.8 Requirement c) Total cost of raw materials 250400 335000 388800 308600 1282800 Requirement d) Expected cash disbursement for raw materials for the year under this revised budget. 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Annual Total cost of raw materials 250400 335000 388800 308600 1282800 Payment towards purchases From Accounts Payable beg. Balance 81500 81500 For purchases made in Quarter 1 150240 100160 250400 For purchases made in Quarter 2 201000 134000 335000 For purchases made in Quarter 3 233280 155520 388800 For purchases made in Quarter 4 185160 185160 Requirement d Total disbursement for raw materials 231740 301160 367280 340680 1240860 Requirement e) Yes, this is potential Problem. From the data, it can be seen that company is planning to produce 83000 units in the quarter 1 of the next year. And further, it plans to sell 90000 units in the quarter 2 of next year. So, due to production constraint, it may lose contribution from sales above these units.