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 Budgeted unit sales Selling price per unit 45,000 65,000 115,000 80,000 85,000 90,000 57 per unit Excel 3 Data 115 Budgeted unit sales g price per uni cer uni 8 Accounts recelvable beginning baiance 9Sales colected In the quarter sales are made 0.Sales colected In the quarter ater sales are made 11Dealred ending finlahed coods I 65.0 75 25 30% of the budgeted unit sales of the next quarter 12 Finlehed goods Inventory,beginning 13.Raw materials required to produce one unit 4Deelred ending Inventory of ra 5Raw materlals Inventory, 6Raw materlal coats 7Raw materlals purchases are pald 18 and 19.Accounce payable for raw materiale, beginning balance 12.000 units 5 pounde 10% of the next quarters production needs 3.000 pound 0.80 per pound 60% in tine quarter the purchases are made 40% in tine quarter following purchase 1.500 a. What are the total expected cash collections for the year under this revised budget? b. What is the total required production for the year under this revised budget? r the units c. What is the total cost of raw materials to be purchased for the year under this revised budge:? cost of raw materials to the d. 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? O Yes O No e.

Explanation / Answer

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

Total expected cash collections for the year is $1,955,000.

b) Calculation of total required production (in units)

The total required production for the year under this revised budget is 298,500 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 $1,210,200.

** Calculation of ending raw material for Qtr 4

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

= 85,000+(90,000*30%)-25,500 = 86,500 units

Raw material production needs for Qtr 1 of year 3 = 86,500 units*5 pounds = 432,500 pounds

Ending raw material for Qtr 4 of year 2 = 432,500*10% = 43,250 pounds

d) Calculation of cash disbursements (Amounts in $)

Therefore the total expected cash disbursements for raw materials for the year is $1,180,660.

Particulars Qtr 1 Qtr 2 Qtr 3 Qtr 4 Year 2 1) Units sold 45,000 65,000 115,000 60,000 285,000 2) Sale price per unit $7 $7 $7 $7 $7 3) Budgeted Sales (1*2) 315,000 455,000 805,000 420,000 1,995,000 4) Collection of sales for the current Qtr (3*75%) 236,250 341,250 603,750 315,000 1,496,250 5) Collection for the previous quarter sales (25% of previous quarter) 65,000 78,750 113,750 201,250 458,750 6) Total cash collections (4+5) 301,250 420,000 717,500 516,250 1,955,000

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