Question

Bombs Away Video Games Corporation has forecasted the following monthly sales: January $103,000 July $ 48,000 February 96,000 August 48,000 March 28,000 September 58,000 April 28,000 October 88,000 May 23,000 November 108,000 June 38,000 December 126,000 Total annual sales = $792,000 Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for $5 per unit and costs $2 per unit to produce. A level production policy is followed. Each month's production is equal to annual sales (in units) divided by 12. Of each month's sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made. a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is 28,000 units. Bombs Away Video Games Corporation Production and Inventory Schedule in Units Beginning Production - Sales Ending Inventory January 28,000 February Marchi April May June July August September October November December |

Answer 1

Solution of the above problem is as under:

a) Statement showing monthly production and inventory schedule in units

Bombs Away Video Games Corporation
Production and Inventory Schedule in Units
Months	Beginning Inventory	Production	Sales	Ending Inventory
January	28000	13200	-20600	20600
February	20600	13200	-19200	14600
March	14600	13200	-5600	22200
April	22200	13200	-5600	29800
May	29800	13200	-4600	38400
June	38400	13200	-7600	44000
July	44000	13200	-9600	47600
August	47600	13200	-9600	51200
September	51200	13200	-11600	52800
October	52800	13200	-17600	48400
November	48400	13200	-21600	40000
December	40000	13200	-25200	28000

Note: Beginning Inventory + Production - Sales = Ending Inventory

Company follows the production policy of each month production is equal to annual sales divided by 12 .i.e $792000/$5=158400 units/12=13200 units

b) Statement showing monthly schedule of Cash Receipts

Bombs Away Video Games Corporation
Cash Receipts Schedule
Particulars	January	February	March	April	May	June	July	August	September	October	November	December
Sales ($)	103000	96000	28000	28000	23000	38000	48000	48000	58000	88000	108000	126000
Cash Receipts:
Cash Sales ($)	30900	28800	8400	8400	6900	11400	14400	14400	17400	26400	32400	37800
Prior Month's Credit Sales($)	70000	72100	67200	19600	19600	16100	26600	33600	33600	40600	61600	75600
Toral Cash Receipts ($)	100900	100900	75600	28000	26500	27500	41000	48000	51000	67000	94000	113400

c) Statement showing monthly cash payment schedule

Bombs Away Video Games Corporation
Cash Payment Schedule
Particulars	January	February	March	April	May	June	July	August	September	October	November	December
Production Cost ($)	26400	26400	26400	26400	26400	26400	26400	26400	26400	26400	26400	26400
Other Cash Payments ($)	48000	48000	48000	48000	48000	48000	48000	48000	48000	48000	48000	48000
Total Cash Payments ($)	74400	74400	74400	74400	74400	74400	74400	74400	74400	74400	74400	74400

d) Statement showing Monthly Cash Budget

Bombs Away Video Games Corporation
Cash Budget
Particulars	January	February	March	April	May	June	July	August	September	October	November	December
Beginning Cash	5000	31500	58000	59200	12800	5000	5000	5000	5000	5000	5000	5000
Cash Receipts via Sales	100900	100900	75600	28000	26500	27500	41000	48000	51000	67000	94000	113400
Cash Payment for Production	-74400	-74400	-74400	-74400	-74400	-74400	-74400	-74400	-74400	-74400	-74400	-74400
Net Cash Flow	26500	26500	1200	-46400	-47900	-46900	-33400	-26400	-23400	-7400	19600	39000
Cumulative Cash Balance	31500	58000	59200	12800	-35100	-41900	-28400	-21400	-18400	-2400	24600	44000
Monthly Loan or (Repayment)	0	0	0	0	40100	46900	33400	26400	23400	7400	-19600	-39000
Ending Cash Balance	31500	58000	59200	12800	5000	5000	5000	5000	5000	5000	5000	5000
Cumulative Loan Balance	0	0	0	0	40100	87000	120400	146800	170200	177600	158000	119000

Note: It is given in the question that Minimum Cash Balance to be maintained by the Corporation is $ 5000. Loan is taken in the month where the Monthly Cash goes below the desired limit.