You are the Controller of Mynor Corporation and your team is responsible for preparing the Master Budget for next year. Your initial budget was prepared for the unit sales with an $8-unit sale price. Mynor recently hired a new marketing manager who insists that unit sales can be dramatically increased by dropping the selling price from $8 to $7 per unit. The CFO has asked you to prepare a presentation regarding the two budget proposals that discusses the differences between your initial budget and the proposed budget with the change in the budgeted unit sales based on the reduced selling price. 1) Discuss the change in Total Sales, Cash Collections, Required Production, Raw Materials to be Purchased, and Total Cash Disbursements. 2) Discuss the issue regarding the current production constraint that the production manager disclosed. 3) Make recommendations to CFO regarding the two different budgets and the current production constraint. Data Year 2 Quarter Year 3 Quarter Year 3 Quarter 2 70,000 80,000 Budgeted unit sales 40,000 60,000 100,000 50,000 Selling price per unit Accounts receivable, beginning balance 1. Sales collected in the quarter sales are made 1. Sales collected in the quarter after sales are made . Desired ending finished goods inventory is - Finished goods inventory, beginning Raw materials required to produce one unit - Desired ending inventory of raw materials is Raw materials inventory, beginning Raw material costs Raw materials purchases are paid and 1. Accounts payable for raw materials, beginning balance $8 per unit $65,000 75% 25% 30% of the budgeted unit sales of the next quarter 12,000 units 5 pounds 10% of the next quarter's production needs 23,000 pounds $0.80 per pound 60% in the quarter the purchases are made 40% in the quarter following purchase $81,500 Enter a formula into each of the cells marked with a ? below Review Problem: Budget Schedules Construct the sales budget Year 3 Quarter b Year 2 Quarter 3 60,000 100,000 $8 $8 $480,000 $800,000 . Budgeted unit sales Selling price per unit Total sales 80,000 40,000 $8 $320,000 50,000 $8 $400,000 70,000 $8 $560,000 $8 $640,000 Construct the schedule of expected cash collections Year 2 Quarter 2 3 $ 65,000 240,000 $ 80,000 360,000 Accounts receivable, beginning balance First-quarter sales Second-quarter sales Third-quarter sales Fourth-quarter sales Total cash collections $ 120,000 600,000 4 Year $ 65,000 320,000 480,000 $200,000 800,000 300,000 300,000 $ 500,000 $1,965,000 $ 305,000 $440,000 $ 720,000 Construct the production budget Budgeted unit sales Add desired finished goods inventory Total needs Less beginning inventory Required production 40,000 18,000 58,000 12.000 46,000 Year 2 Quarter 2 3 60,000 100,000 30,000 15,000 90,000 115,000 18,000 30,000 72,000 85,000 4 50,000 21,000 71,000 15,000 56,000 Year 250,000 21,000 271,000 12,000 259,000 Year 3 Quarter 1 70,000 80,000 24,000 94,000 21,000 73,000 Construct the raw materials purchases budget Year 2 Quarter Year 3 Quarter Year 259,000 73,000 46,000 72,000 85,000 56,000 365,000 Required production (units) Raw materials required to produce one unit Production needs (pounds) Add desired ending inventory of raw materials (pounds) Total needs (pounds) Less beginning inventory of raw materials (pounds) Raw materials to be purchased Cost of raw materials per pound Cost of raw materials to be purchased 230,000 36,000 266,000 23,000 243,000 $0.80 $194,400 360,000 42,500 402,500 36,000 366,500 $0.80 $293,200 425,000 28,000 453,000 42,500 410,500 $0.80 $328,400 280,000 36,500 316,500 28,000 288,500 $0.80 $230,800 1,295,000 36,500 1,331,500 23,000 1,308,500 $0.80 $1,046,800 Construct the schedule of expected cash payments $ 81,500 116,640 Accounts payable, beginning balance First-quarter purchases Second-quarter purchases Third-quarter purchases Fourth-quarter purchases Total cash disbursements Year 2 Quarter 2 3 4 Year $ 81,500 $ 77,760 194,400 175,920 $ 117,280 293,200 197,040 $ 131,360 328,400 138,480 138,480 $ 253,680 $ 314,320 $ 269,840 $ 1,035,980 $ 198,140 You are the Controller of Mynor Corporation and your team is responsible for preparing the Master Budget for next year. Your initial budget was prepared for the unit sales with an $8-unit sale price. Mynor recently hired a new marketing manager who insists that unit sales can be dramatically increased by dropping the selling price from $8 to $7 per unit. The CFO has asked you to prepare a presentation regarding the two budget proposals that discusses the differences between your initial budget and the proposed budget with the change in the budgeted unit sales based on the reduced selling price. 1) Discuss the change in Total Sales, Cash Collections, Required Production, Raw Materials to be Purchased, and Total Cash Disbursements. 2) Discuss the issue regarding the current production constraint that the production manager disclosed. 3) Make recommendations to CFO regarding the two different budgets and the current production constraint. Data Year 2 Quarter Year 3 Quarter Year 3 Quarter 2 70,000 80,000 Budgeted unit sales 40,000 60,000 100,000 50,000 Selling price per unit Accounts receivable, beginning balance 1. Sales collected in the quarter sales are made 1. Sales collected in the quarter after sales are made . Desired ending finished goods inventory is - Finished goods inventory, beginning Raw materials required to produce one unit - Desired ending inventory of raw materials is Raw materials inventory, beginning Raw material costs Raw materials purchases are paid and 1. Accounts payable for raw materials, beginning balance $8 per unit $65,000 75% 25% 30% of the budgeted unit sales of the next quarter 12,000 units 5 pounds 10% of the next quarter's production needs 23,000 pounds $0.80 per pound 60% in the quarter the purchases are made 40% in the quarter following purchase $81,500 Enter a formula into each of the cells marked with a ? below Review Problem: Budget Schedules Construct the sales budget Year 3 Quarter b Year 2 Quarter 3 60,000 100,000 $8 $8 $480,000 $800,000 . Budgeted unit sales Selling price per unit Total sales 80,000 40,000 $8 $320,000 50,000 $8 $400,000 70,000 $8 $560,000 $8 $640,000 Construct the schedule of expected cash collections Year 2 Quarter 2 3 $ 65,000 240,000 $ 80,000 360,000 Accounts receivable, beginning balance First-quarter sales Second-quarter sales Third-quarter sales Fourth-quarter sales Total cash collections $ 120,000 600,000 4 Year $ 65,000 320,000 480,000 $200,000 800,000 300,000 300,000 $ 500,000 $1,965,000 $ 305,000 $440,000 $ 720,000 Construct the production budget Budgeted unit sales Add desired finished goods inventory Total needs Less beginning inventory Required production 40,000 18,000 58,000 12.000 46,000 Year 2 Quarter 2 3 60,000 100,000 30,000 15,000 90,000 115,000 18,000 30,000 72,000 85,000 4 50,000 21,000 71,000 15,000 56,000 Year 250,000 21,000 271,000 12,000 259,000 Year 3 Quarter 1 70,000 80,000 24,000 94,000 21,000 73,000 Construct the raw materials purchases budget Year 2 Quarter Year 3 Quarter Year 259,000 73,000 46,000 72,000 85,000 56,000 365,000 Required production (units) Raw materials required to produce one unit Production needs (pounds) Add desired ending inventory of raw materials (pounds) Total needs (pounds) Less beginning inventory of raw materials (pounds) Raw materials to be purchased Cost of raw materials per pound Cost of raw materials to be purchased 230,000 36,000 266,000 23,000 243,000 $0.80 $194,400 360,000 42,500 402,500 36,000 366,500 $0.80 $293,200 425,000 28,000 453,000 42,500 410,500 $0.80 $328,400 280,000 36,500 316,500 28,000 288,500 $0.80 $230,800 1,295,000 36,500 1,331,500 23,000 1,308,500 $0.80 $1,046,800 Construct the schedule of expected cash payments $ 81,500 116,640 Accounts payable, beginning balance First-quarter purchases Second-quarter purchases Third-quarter purchases Fourth-quarter purchases Total cash disbursements Year 2 Quarter 2 3 4 Year $ 81,500 $ 77,760 194,400 175,920 $ 117,280 293,200 197,040 $ 131,360 328,400 138,480 138,480 $ 253,680 $ 314,320 $ 269,840 $ 1,035,980 $ 198,140