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	120,000	75,000		90,000	95,000
Selling price per unit	$7

budget unit sales

selling price per unit $7 per unit

accounts receivable $65000

sales collected in quarter sales 75%

sales collected in quarter after sales are made 25%

desired ending finished goods inventory 30%

finished goods inventory beginning 12000 units

raw mterials 5 pounds

desired ending inventory of raw mateials 10%

raw materials inventory beginning 23000 pounds

raw materials cost .80

raw material purchases are paid 60%

and 40%

accounts payable for raw materials beginning balance 81500

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 90,000 units in any one quarter. Is this a potential problem?

multiple choice

• Yes
• No