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The company has just hired a new marketing manager who insists that unit sales can be...

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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:

Data Year 2 Quarter Year 3 Quarter
1 2 3 4 1 2
Budgeted unit sales 50,000 70,000 120,000 65,000 85,000 90,000


Selling price per unit $7 per unit
Accounts receivable beginning balance $65,000
Sales collected in the quarter sales are made75%
Sales collected in the quarter after sales are made25%
Desired ending finished goods inventory is30% of the budgeted unit sale of the next quarter
Finished goods inventory, beginning12,000 units
Raw materials required to produce one unit5 pounds
Desired ending inventory of raw materials is 10% of the next quarter's production needs
Raw materials inventory, beginning23,000 pounds
Raw materials costs$0.80per pound
Raw materials purchases are paid60% in the quarter the purchases are made
and40% 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?
b. What is the total required production for the year under this revised budget?
c. What is the total cost of raw materials to be purchased for the year under this revised budget?
d. What are the total expected cash disbursements for raw materials for the year under this new revised budget?

Budgeting

Estimated sales volume is the usual starting point of budgeting. Sales become the basis of purchases, inventories, and production. The estimation of the sales volume must be a reasonable and the result must be attainable for the budget to be useful to the organization.

Answer and Explanation: 1

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Question (a.)


The total expected cash collections for the year under this revised budget equal $2,086,250.

We need to establish the amount of...

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How to Prepare a Budget for a Corporation

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Chapter 12 / Lesson 4
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Building a budget helps companies prepare for the total number and costs of goods to be produced and sold. Learn how to prepare a budget for a corporation, including how to plan them, get feedback, and update them while also preparing for the next year.


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