The company has just hired a new marketing manager who insists that unit sales can be...
Question:
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 made | 75% |
| Sales collected in the quarter after sales are made | 25% |
| Desired ending finished goods inventory is | 30% of the budgeted unit sale of the next quarter |
| Finished goods inventory, beginning | 12,000 units |
| Raw materials required to produce one unit | 5 pounds |
| Desired ending inventory of raw materials is | 10% of the next quarter's production needs |
| Raw materials inventory, beginning | 23,000 pounds |
| Raw materials costs | $0.80per pound |
| Raw materials purchases are paid | 60% in the quarter the purchases are made |
| and | 40% 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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