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

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:

  

Year 2 Quarter

Year 3 Quarter

selling price per unit $8 per unit

Accounts receivable, beginning balance 65,000

Sales collected in the quarter sales are made  75 %

Sales collected in the quarter after sales are made 25%

Desired ending finished goods inventory is 30% of the budgeted unit sales of the next quarter

Finished goods inventory, beginning 12000 units

Raw materials required to produce one unit 5 pounds

Desired ending inventory of raw materials is  10 % of the next quarter's production needs

Raw materials inventory, beginning   23,000 pounds

Raw material costs   $0.80 per pound

Raw materials purchases are paid   60% in the quarter the purchases are made

and 40 % in the quarter following purchase

Accounts payable for raw materials, beginning balance   $81,500

a) 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?

     

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:

Explanation / Answer

a) Calculation of total expected cash collections for year 2 (Amounts in $)

Total expected cash collections for the year is $2,033,750.

b) Calculation of total required production (in units)

The total required production for the year under this revised budget is 312,000 units

c) Calculation of cost of material to be purchased (Amounts in $)

Therefore the total cost of raw materials to be purchased for the year under this revised budget is $1,262,800.

** Calculation of ending raw material for Qtr 4

Required production for Qtr 1 of year 3 = Sales+Ending inventory - Beg. inventory

= 80,000+(90,000*30%)-24,000 = 83,000 units

Raw material production needs for Qtr 1 of year 3 = 83,000 units*5 pounds = 415,000 pounds

Ending raw material for Qtr 4 of year 2 = 415,000*10% = 41,500 pounds

d) Calculation of cash disbursements (Amounts in $)

Therefore the total expected cash disbursements for raw materials for the year is $1,220,860.

Particulars Qtr 1 Qtr 2 Qtr 3 Qtr 4 Year 2 1) Units sold 50,000 70,000 105,000 75,000 300,000 2) Sale price per unit $7 $7 $7 $7 $7 3) Budgeted Sales (1*2) 350,000 490,000 735,000 525,000 2,100,000 4) Collection of sales for the current Qtr (3*75%) 262,500 367,500 551,250 393,750 1,575,000 5) Collection for the previous quarter sales (25% of previous quarter) 65,000 87,500 122,500 183,750 458,750 6) Total cash collections (4+5) 327,500 455,000 673,750 577,500 2,033,750

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.