The Alpha Company manufactures sunglasses sold throughout the United States. The
ID: 2481715 • Letter: T
Question
The Alpha Company manufactures sunglasses sold throughout the United States. The sunglasses are forecast to sell for $25 each. Recent and forecast sales in units for 20x1 are:
January 10,000
February 12,000
March 15,000
April 17,000
May 20,000
June 30,000
July 40,000
August 36,000
September 32,000
October 22,000
November 12,000
December 10,000
All sales are ‘on account’ (meaning credit) and collected as follows: 20% in the month of sale and the remaining 80% in the following month. The following entry is made each time a credit sale is made:
Debit: Account Receivable
Credit: Sales
The beginning (1/1/x1) Account Receivable balance is $100,000 (remaining prior year Dec sales to be collected).
The sunglasses are expected to cost the company $10 each. Ending inventories are supposed to equal 75% of the next month’s sales in units. Beginning Inventory in January 20x1 is 8000 units. Sales for 20x2 are expected to be the same as above units with an increase of 20% (use this to determine December’s 20x2 ending units).
All purchases are ‘on account’ (meaning credit). Purchases are paid for as follows: 50% in the month of purchase and the remaining 50% in the following month. The following entry is made each time a credit purchase is made:
Debit: Inventory
Credit: Account Payable
The beginning (1/1/x1) Account Payable balance is $50,000 (remaining prior year Dec purchases to be paid).
The company’s monthly operating expenses are given below:
Sales commissions $3 per pair of sunglasses
Wages and salaries $30,000
Utilities & Rent $25,000
Advertising $5,000
Other Expenses $3,000
All operating expenses are paid during the month, in cash. In addition, the company has property taxes that will be paid in February of $30,000. They anticipate an income tax payment in April of $150,000.
Requirement 1: Prepare the following budgets for the first six months of the upcoming year:
Sales Budget (expected units sold x sales price)
Cash Collection Budget
Production budget (in units) (sale units + expect End. Inv = Total needs – Beg. Inv = Production needed)
Purchase budget (production units x cost per unit = $ purchases
Cash Payment budget (include inventory purchases & other expenses)
Cash Flow Analysis (Total Cash collections less total cash payments)
Requirement 2: Prepare a budgeted income statement for each month for the next six months. Include a common size income statement for the budgeted numbers (divided each number to sales).
Explanation / Answer
Sales Budget Jan Feb Mar Apr May Jun Units 10000 12000 15000 17000 20000 30000 Price per unit 25 25 25 25 25 25 Sales 250000 300000 375000 425000 500000 750000 Production Budget Jan Feb Mar Apr May Jun Sales Units 10000 12000 15000 17000 20000 30000 Desired Closing Inventory 9000 11250 12750 15000 22500 30000 Opening Inventory 8000 9000 11250 12750 15000 22500 Production Units 11000 14250 16500 19250 27500 37500 Purchase Budget Production Units 11000 14250 16500 19250 27500 37500 Cost per unit 10 10 10 10 10 10 Purchase 110000 142500 165000 192500 275000 375000 Cash Collection Budget Jan Feb Mar Apr May Jun Opening Receivables collection 100000 Jan Sales collection 50000 200000 Feb Sales Collection 60000 240000 March Sales Collection 75000 300000 April Sales collection 85000 340000 May Sales Collection 100000 400000 June sales collection 150000 150000 260000 315000 385000 440000 550000 Cash Payment Jan Feb Mar Apr May Jun Payment for Dec Purchase 50000 Payment for Jan Purchase 55000 55000 Payment for Feb Purchase 71250 71250 March Purchase 82500 82500 April Purchase 96250 96250 May Purchase 137500 137500 june Purchase 187500 Sales Commission 30000 36000 45000 51000 60000 90000 Wages & Salaries 30000 30000 30000 30000 30000 30000 Utilities & Rent 25000 25000 25000 25000 25000 25000 Advertising 5000 5000 5000 5000 5000 5000 Other expenses 3000 3000 3000 3000 3000 3000 Property Tax 30000 Income Tax 150000 Total Payments 198000 255250 261750 442750 356750 478000 Cash Flow Jan Feb Mar Apr May Jun Collection 150000 260000 315000 385000 440000 550000 Payment 198000 255250 261750 442750 356750 478000 Cash Flow -48000 4750 53250 -57750 83250 72000 Income Statement Jan Feb Mar Apr May Jun Sales 250000 300000 375000 425000 500000 750000 COGS Opening Inventory 80000 90000 112500 127500 150000 225000 Purchase 110000 142500 165000 192500 275000 375000 Closing Inventory -90000 -112500 -127500 -150000 -225000 -300000 COGS 100000 120000 150000 170000 200000 300000 Gross Margin 150000 180000 225000 255000 300000 450000 Sales Commission 30000 36000 45000 51000 60000 90000 Wages & Salaries 30000 30000 30000 30000 30000 30000 Utilities & Rent 25000 25000 25000 25000 25000 25000 Advertising 5000 5000 5000 5000 5000 5000 Other expenses 3000 3000 3000 3000 3000 3000 Operating Profit 57000 81000 117000 141000 177000 297000 Property Tax 30000 Income tax provision 150000 Net Profit 57000 51000 117000 -9000 177000 297000 Jan Feb Mar Apr May Jun Sales 250000 100% 300000 100% 375000 100% 425000 100% 500000 100% 750000 100% COGS Opening Inventory 80000 32% 90000 30% 112500 30% 127500 30% 150000 30% 225000 30% Purchase 110000 44% 142500 48% 165000 44% 192500 45% 275000 55% 375000 50% Closing Inventory -90000 -36% -112500 -38% -127500 -34% -150000 -35% -225000 -45% -300000 -40% COGS 100000 40% 120000 40% 150000 40% 170000 40% 200000 40% 300000 40% Gross Margin 150000 60% 180000 60% 225000 60% 255000 60% 300000 60% 450000 60% Sales Commission 30000 38% 36000 12% 45000 12% 51000 12% 60000 12% 90000 12% Wages & Salaries 30000 27% 30000 10% 30000 8% 30000 7% 30000 6% 30000 4% Utilities & Rent 25000 10% 25000 8% 25000 7% 25000 6% 25000 5% 25000 3% Advertising 5000 5% 5000 2% 5000 1% 5000 1% 5000 1% 5000 1% Other expenses 3000 2% 3000 1% 3000 1% 3000 1% 3000 1% 3000 0% Operating Profit 57000 23% 81000 27% 117000 31% 141000 33% 177000 35% 297000 40% Property Tax 30000 10% Income tax provision 150000 35% Net Profit 57000 23% 51000 17% 117000 31% -9000 -2% 177000 35% 297000 40%
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