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 45,000 70,000 105,000 70,000 90,000 100,000
Selling price per unit $7 per unit
a. What are the total expected cash collections for the year under this revised budget?
b. What is the total required the 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 revised budget?
e. After seeing this revised budget, the production manager cautioned that due to the current production constraint, a complex milling machine, the plant can produce no more than 80,000 units in any one quarter. Is this a potential problem?

a. What are the total expected cash collections for the year under this revised budget?

65 + 236.25 + 78.75 + 367.5 + 122.5 + 551.25 + 183.75 + 367.5 = 1,972.5 x $1,000 = $1,972,500

b. What is the total required production for the year under this revised budget?

52.5 + 80.5 + 94.5 + 76 = 303.5 x 1,000 = 303,500 units

c. What is the total cost of raw materials to be purchased for the year under this revised budget?

237 + 367.5 + 507.5 + 360 = 1,472 x 1,000 = 1,472,000 pounds x $0.80 = $1,177,600

d. What are the total expected cash disbursements for raw materials for the year under this revised budget?

195.26 + 252.24 + 361.2 + 330.4 = 1,139.1 x $1,000 = $1,139,100  

e. After seeing this revised budget, the production manager cautioned that due to the current production constraint, a complex milling machine, the plant can produce no more than 80,000 units in any one quarter. Is this a potential problem?

No, since total budgeted sales for the year are 303,500 units, which divided by 4 quarters = 75,875 units per quarter. All you need to do is increase quarter 1 production by 15,000 units, and that would satisfy quarters 2 and 3 needs.

Explanation:

                                    Year 2 Quarter               Year 3 Quarter

                            1           2          3          4               1            2

unit sales           45        70        105      70            90          100

(in thousands)

total sales         315      490       735     490         630         700

(in thousands)

cash collected  65       78.75   122.5   183.75    122.5       157.5

(in thousands) 236.25 367.5   551.25 367.5     472.5       525

75% of sales are collected during this quarter and 25% are collected the next quarter

beginning $65,000

ending finished inventory 30% of budgeted sales for next quarter

                                    Year 2 Quarter               Year 3 Quarter

                            1           2          3          4               1            2

beginning          13.5       21       31.5       21            27          30

ending                21        31.5       21        27           30            ?

quarter sales     45        70        105      70            90          100

production        52.5     80.5     94.5    76            93            ?

cost of raw materials = $0.80, 5 pounds per unit produced

beginning inventory of raw materials = 23,000 pounds

desired ending inventory of raw materials = 10% of next quarter's needs

                                    Year 2 Quarter               Year 3 Quarter

                            1           2          3          4               1            2

beginning          23        35       52.5       35            45          50

ending               35        52.5       35        45           50            ?

quarter needs   225      350     525       350         450         500

raw materials    237     367.5    507.5    360         455            ?

60% of raw materials cost paid during the quarter, 405 paid the next quarter

beginning accounts payable 81.5

                                    Year 2 Quarter               Year 3 Quarter

                            1           2          3          4               1            2

past q $              81.5     75.84    117.6   162.4         112         114

next q $             75.84    117.6    162.4     112           114           ?

quarter needs   189.6     294     406       280         360         ?

payments         195.26   252.24  361.2   330.4      358         ?

answer; niosh, the national institute for occupational safety and health;