Requirement 2:

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:

	Year 2 Quarter					Year 3 Quarter
Data	1	2	3	4		1	2
Budgeted unit sales	45,000	65,000	110,000	75,000		80,000	95,000
Selling price per unit	$7

Year 3 Quarter123412

Budgeted unit sales45,00065,000110,00075,00080,00095,000

Selling price per unit$7per 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 sales of the next quarter

Finished goods inventory, beginning12,000units

Raw materials required to produce one unit5pounds

Desired ending inventory of raw materials is10%of the next quarter's production needs

Raw materials inventory, beginning23,000pounds

Raw material costs$0.80per pound

Raw materials purchases are paid60%in the quarter the purchases are madeand40%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 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?

multiple choice

No

Yes