Requirement 2 The company has just hired a new marketing manager who insists tha

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 Data Year 2 Quarter Year 3 Quarter 50,000 65,000 115,000 75,000 85,000 95,000 Budgeted unit sales Selling price per unit $7 per unit 1 Chapter 7: Applying Excel 3 Data Year 2 Quarter Year 3 Quarter 5 Budgeted unit sales 50,000 65,000 115,000 75,000 85,000 95,000 Selling price per unit 8 per unit 8Accounts receivable, beginning balance $65,000 15% 25% 30% of the budgeted unit sales of the next quarter 9 Sales collected in the quarter sales are made 10 Sales collected in the quarter after sales are made 11Desired ending finished goods inventory is 12 Finished goods inventory, beginning 13.Raw materials required to produce one unit 4Desired ending inventory of raw materials is 15.Raw materials inventory, beginning 16Raw material costs 17Raw materials purchases are paid 18 and 19 Accounts payable for raw materials, beginning balance 20 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 $81,500

Explanation / Answer

a) Calculation of Expected Cash Collections for year 2 (Amounts in $)

Therefore total cash collections for the year is $2,068,750.

b) Calculation of Required Production for the Year (in units)

Therefore total required production for the year is 318,500 units.

c) Desired ending raw materials for year 2 = Year 3 Qtr 1 production needs*10%

Year 3 Qtr 1 finished goods required = 85,000+(95,000*30%)-25,500 = 88,000 units

Desired ending raw materials for year 2 = 88,000 units*5 pounds*10% = 44,000 pounds

Total material production needs for the year = 318,500 units*5 pounds = 1,592,500 pounds

Raw material required to purchased = Production needs+Desired ending materials-Beg. materials

= 1,592,500 pounds+44,000 pounds-23,000 pounds = 1,613,500 pounds

Cost of raw material purchased for the year = 1,613,500 pounds*$0.80 per pound

= $1,290,800

d) The Accounts payable in the beginning will be paid in this year, purchases made in quarter 1, quarter 2 and quarter 3 will be wholly paid in this year (i.e. year 2) but 40% of quarter 4 purchase will be outstanding at year end.

Raw material to be purchased in Qtr 4 = Production needs+Desired ending materials-Beg. materials

= (units produced*5 pounds)+Year Ending material-(10% of production needs of current Qtr)

= (78,000 units*5 pounds)+44,000 pounds-(10%*78,000 units*5 pounds)

= 390,000 pounds+44,000 pounds-39,000 pounds = 395,000 pounds

Cost of raw materials purchased in Qtr 4 = 395,000 pounds*$0.80 = $316,000

Total expected cash disbursements for the year

= Beg. Accounts Payable+Purchases-Ending Accounts Payable

= $81,500+$1,290,800-($316,000*40%) = $1,245,900

Therefore total cash disbursements for the year is $1,245,900.

Particulars Qtr 1 Qtr 2 Qtr 3 Qtr 4 Year 2 Accounts Receivable, beg bal 65,000 0 0 0 65,000 Quarter 1 (50,000 units*$7) (75%:25%) 262,500 87,500 0 0 350,000 Quarter 2 (65,000 units*$7) 0 341,250 113,750 0 455,000 Quarter 3 (115,000 units*$7) 0 0 603,750 201,250 805,000 Quarter 4 (75,000 units*$7) 0 0 0 393,750 393,750 Total 327,500 428,750 717,500 595,000 2,068,750

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