Johnson Corporation Johnson Corporation manufactures and sells one product. The
ID: 2576804 • Letter: J
Question
Johnson Corporation
Johnson Corporation manufactures and sells one product. The following information concerns operations for Year 2—the coming year—and for the first two quarters of Year 3:
The company’s product sells for $10 per unit. Budgeted sales in units for the next six quarters are as follows (all sales are on credit):
Year 2 Quarter: Year 3 Quarter:
50,000 1 70,000
60,000 2 80,000
100,000
40,000
Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1, Year 2, the company’s balance sheet showed $75,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are negligible and can be ignored.
Johnson desires an ending finished goods inventory at the end of each quarter equal to 30% of the budgeted unit sales for the next quarter. On December 31, Year 1, the company had 15,000 units on hand.
Five pounds of raw materials inventory are required to complete one unit of product. The company requires ending raw materials inventory at the end of each quarter equal to 10% of the following quarter’s productions needs. On December 31, Year 1, the company had 23,000 pounds of raw materials on hand.
The raw material costs $.90 per pound. Raw material purchases are paid for in the following manner: 60% paid in the quarter the purchases are made, and the remaining 40% paid in the following quarter. On January 1, Year 2, the company’s balance sheet showed $89,000 in accounts payable for raw material purchases, all of which will be paid for in the first quarter of the year.
Required:
Prepare the following budgets and schedules for the year, showing both quarterly and total figures:
Sales budget
Schedule of expected cash collections
Production budget
Direct materials budget
Schedule of expected cash payments for purchases of materials
Explanation / Answer
Solution:
Part 1 – Sales Budget
Sales Budget Year 2
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total
Budgeted Sales (Units)
50,000
60,000
100,000
40,000
Per unit selling price (b)
$10
$10
$10
$10
Budgeted Sales Revenue in dollars (a*b)
$500,000
$600,000
$1,000,000
$400,000
$2,500,000
Part 2 – Schedule of Expected Cash Collection
Schedule of Expected Cash Collection
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total
Accounts Receivable Beg. Balance
$75,000
Year 2 -- Quarter 1 Sales
375,000
(500,000*75%)
125,000
(500,000*25%)
Year 2 -- Quarter 2 Sales
$450,000
(600,000*75%)
$150,000
(600,000*25%)
Year 2 -- Quarter 3 Sales
$750,000
(1,000,000*75%)
$250,000
(1,000,000*25%)
Year 2 -- Quarter 4 Sales
$300,000
(400,000*75%)
Total Expected Cash Collection
$450,000
$575,000
$900,000
$550,000
$2,475,000
Part 3 – Production Budget
Production Budget
Year 2
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total
Next Quarter's Expected Unit Sales
60,000
100,000
40,000
70,000
Ratio of inventor to future sales
30%
30%
30%
30%
Budgeted Finished Goods Ending Inventory (units)
18,000
30,000
12,000
21,000
Add: Budgeted Sales (units)
50,000
60,000
100,000
40,000
Required units of available production
68,000
90,000
112,000
61,000
Less: Budgeted Beginning Inventory (Ending Finished Goods Inventory of last month)
15,000
18,000
30,000
12,000
Units to be produced
53,000
72,000
82,000
49,000
256000
Working for Production Budget
Production Budget
Year 2
Year 3
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Quarter 1
Quarter 2
Next Quarter's Expected Unit Sales
60,000
100,000
40,000
70,000
80,000
Ratio of inventor to future sales
30%
30%
30%
30%
30%
Budgeted Finished Goods Ending Inventory (units)
18,000
30,000
12,000
21,000
24,000
Add: Budgeted Sales (units)
50,000
60,000
100,000
40,000
70,000
Required units of available production
68,000
90,000
112,000
61,000
94,000
Less: Budgeted Beginning Inventory (Ending Finished Goods Inventory of last month)
15,000
18,000
30,000
12,000
21,000
Units to be produced
53,000
72,000
82,000
49,000
73,000
Part 4 – Direct materials budget
Direct Materials Budget
Year 2
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total
Units to be produced
53000
72000
82000
49000
Raw materials needed per unit (pounds)
5
5
5
5
Total Required raw materials for production
265000
360000
410000
245000
Add: Raw materials ending inventory (10% of the following quarter’s productions needs)
36000
41000
24500
36500
Total Needs
301000
401000
434500
281500
Less: Beginning Inventory of raw materials
23000
36000
41000
24500
Units to be purchased
278000
365000
393500
257000
Unit Purchase Cost per pound
$0.90
$0.90
$0.90
$0.90
Direct materials budget
$250,200
$328,500
$354,150
$231,300
$1,164,150
Working:
Direct Materials Budget
Year 2
Year 3
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Quarter 1
Units to be produced
53000
72000
82000
49000
73000
Raw materials needed per unit (pounds)
5
5
5
5
5
Total Required raw materials for production
265000
360000
410000
245000
365000
Add: Raw materials ending inventory (10% of the following quarter’s productions needs)
36000
41000
24500
36500
Total Needs
301000
401000
434500
281500
Less: Beginning Inventory of raw materials
23000
36000
41000
24500
Units to be purchased
278000
365000
393500
257000
Unit Purchase Cost per pound
$0.90
$0.90
$0.90
$0.90
Merchandise Purchases Budget (dollars)
$250,200
$328,500
$354,150
$231,300
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts.
Sales Budget Year 2
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total
Budgeted Sales (Units)
50,000
60,000
100,000
40,000
Per unit selling price (b)
$10
$10
$10
$10
Budgeted Sales Revenue in dollars (a*b)
$500,000
$600,000
$1,000,000
$400,000
$2,500,000
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