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

70,000

105,000

75,000

85,000

90,000

Selling price per unit

$7

A

B

C

D

E

F

G

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

Chapter 8: Applying Excel
Data					Year 3 Quarter
	1	2	3	4	1	2
Budgeted unit sales	45,000	70,000	105,000	75,000	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 sales 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 material costs	$0.80	per 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 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?

No

Yes

Thank you!