Question

The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):

	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter
Budgeted unit sales	11,500	12,500	14,500	13,500

The selling price of the company’s product is $14 per unit. Management expects to collect 75% of sales in the quarter in which the sales are made, 20% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $71,200.

The company expects to start the first quarter with 1,725 units in finished goods inventory. Management desires an ending finished goods inventory in each quarter equal to 15% of the next quarter’s budgeted sales. The desired ending finished goods inventory for the fourth quarter is 1,925 units.

Required:

1. Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.

2. Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.

3. Calculate the required production in units of finished goods for each quarter of the fiscal year and for the year as a whole.

Answer 1

1) Estimated Sales:
Sales Budget
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Budgeted sales in units (a)	11,500	12,500	14,500	13,500	52,000
Selling Price per Unit (b)	$14	$14	$14	$14	$14
Budgeted sales in dollars (a * b)	$161,000	$175,000	$203,000	$189,000	$728,000
2) Expected cash collections:
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Cash Collections from credit sales:
From previous period	$71,200				$71,200
From 1st quarter ($161,000*75/100); ($161,000*20/100)	$120,750	$32,200			$152,950
From 2nd quarter ($175,000*75/100); ($175,000*20/100)		$131,250	$35,000		$166,250
From 3rd quarter ($203,000*75/100); ($203,000*20/100)			$152,250	$40,600	$192,850
From 4th quarter ($189,000*75/100)				$141,750	$141,750
Expected cash collections	$191,950	$163,450	$187,250	$182,350	$725,000
3) Required production in units of finished goods:
Particulars	1st Quarter	2nd Quarter	3rd Quarter	4th Quarter	Year
Budgeted sales in units	11,500	12,500	14,500	13,500	52,000
Add: Desired ending inventory in units (12,500*15/100); (14,500*15/100); (13,500*15/100);	1,875	2,175	2,025	1,925	8,000
Total production requirements	13,375	14,675	16,525	15,425	60,000
Less: Beginning inventory in units (last quarter's ending inventory will be the current quarter's beginning inventory)	1,725	1,875	2,175	2,025	7,800
Units to be Manufactured	11,650	12,800	14,350	13,400	52,200