Q1 2015 Sales: January 22,000 February 28,000 March 42,000 Sales forecast for Q2
ID: 2416931 • Letter: Q
Question
Q1 2015 Sales:
January 22,000
February 28,000
March 42,000
Sales forecast for Q2-Q3 2015:
April 50,000
May 58,000
June 45,000
July 38,000
August 32,000
September 30,000
Sufficient inventory should be on hand at the end of each month to supply 20% of the hats sold in the following month. Fabric used in production costs $20/yard, and each hat takes 0.5 yards. Enough fabric should be on hand at the end of each month to supply 30% of the yards needed for the next month's production.
ASC pays its suppliers 30% of the purchase amount in the month of purchase and 70% in the month following purchase. Accounts payable has a balance of $275,000 on 3/31/15.
All sales are on credit. ASC collects 25% of credit sales in the month of sale, 60% in the month following sale and 15% in the second month following sale.
ASC’s monthly operating expenses (excluding material purchases) are below:
Variable:
Sales commissions: 4% of sales
Fixed:
Advertising: $300,000
Rent: $54,000
Salaries: $355,000
Utilities: $7,500
Insurance: $7,500
Deprecation: $18,000
Insurance is paid on an annual basis, in January of each year. The Company plans to purchase $75,000 of new equipment in April, $40,000 in May and $100,000 in June, all with cash. The company declares dividends each quarter of $35,000, payable in the first month of the following quarter.
ASC has a minimum required cash balance of $500,000. On 3/31/15, the ending cash balance was $500,000 and there were no loans outstanding. The Company can borrow funds from the bank in any amount at the beginning of the quarter. Interest will accrue at 3% per quarter and will be paid when the loan is repaid, which will be at the end of a quarter.
Required:
Explanation / Answer
a. Sale budget for second quarter is shown as under:
ASC
Sales Budget
For the quarter ended June 30,2015
Month
Particulars
April
May
June
Total
Sale Units (a)
50,000
58,000
45,000
153,000
*Price per unit (b)
$29
$29
$29
87
Total Sales
$1,450,000
$1,682,000
$1,305,000
4,437,000
b. Schedule of cash collections from sales for Q2, by month and in total is shown as below:
It is the budgeted cash collections from customers on sales during a period.
ASC
Schedule of expected Cash collections
For the quarter ended June 30,2015
Month
Particulars
April
May
June
Total
Beginning Accounts Receivable (a)
29,400
6,300
35,700
April Sales(b)
12,500
30,000
7,500
50,000
May Sales (c )
14,500
34,800
49,300
June Sales (d)
11,250
11,250
Total units of collection (e )
41,900
50,800
53,550
135,000
*Price per unit (f)
$29
$29
$29
29
Total collections(e*f)
$1,215,100
$1,473,200
$1,552,950
$3,915,000
Working notes:
All units multiplied by $29 sale price.
c.
Production budget for Q2, by month and in total is shown as under:
ASC
Production Budget
For the quarter ended June 30,2015
Month
Particulars
April
May
June
Total
Sale Units (a)
50,000
58,000
45,000
153,000
Planned ending units (b)
11,600
9,000
7,600
28,200
Beginning units (c )
10,000
11,600
9,000
30,600
Planned production units (d)= (a+b+c)
51,600
55,400
43,600
150,600
*Price per unit (b)
$10
$10
$10
10
Total Production
$516,000
$554,000
$436,000
1,506,000
Working Notes:
April opening units is 20% of April sales which is $10,000
April closing units is 20% of May sales which is $11,600 and so on…
d.
Raw materials purchases budget for Q2, by month and in total is shown as under:
ASC
Raw Material Purchase Budget
For the quarter ended June 30,2015
Month
Particulars
April
May
June
Total
Planned production units (a)
51,600
55,400
43,600
150,600
*Direct Material required per unit (yards) (b)
0.5
0.5
0.5
0.5
Direct Material Required for production (c )
25,800
27,700
21,800
75,300
Budgeted ending Direct Material (d)
8,310
6,540
5,520
20,370
Beginning Direct Material (e )
7,740
8,310
6,540
22,590
Budgeted direct material purchase (f= c+d-e)
26,370
25,930
20,780
73,080
Cost per yard (g)
$20
$20
$20
$20
Budgeted purchases in yards (f*g)
$527,400
$518,600
$415,600
1,461,600
e.
Schedule of expected cash disbursements for merchandise purchases in Q2, by month and in total is as follows:
ASC
Schedule of expected Cash payments
For the quarter ended June 30,2015
Month
Particulars
April
May
June
Total
Beginning Accounts Payable (a)
$275,000
$275,000
April Purchases (b)
$158,220
$369,180
$527,400
May Purchases (c )
$155,580
$363,020
$518,600
June Purchases (d)
$124,680
$124,680
Total payments (a+b+c+d)
$433,220
$524,760
$487,700
$1,445,680
f.
Cash budget for Q2, by month and in total include all cash disbursements (raw materials, operating expenses, capital expenditures, dividends, etc) and any necessary financing activities is prepared as under:
ASC
Cash Budget
For the quarter ended June 30,2015
Month
Particulars
April
May
June
Total
Beginning Cash balance
500,000
500,000
500,000
500,000
Add: Budgeted Cash receipts
$1,215,100
$1,473,200
$1,552,950
4,241,250
cash available for use
$1,715,100
$1,973,200
$2,052,950
4,741,250
Less: cash Disbursements
Direct Material
$433,220
$524,760
$487,700
1,445,680
Sales commission
58000
67280
52200
177,480
Advertising
300,000
300,000
300,000
900,000
Rent
54,000
54,000
54,000
162,000
Salaries
355,000
355,000
355,000
1,065,000
Utilities
7,500
7,500
7,500
22,500
Depreciation
18,000
18,000
18,000
54,000
Equipment purchase
75,000
40,000
100,000
215000
Dividend
35,000
35,000
Total disbusrement
1,335,720
1,366,540
1,374,400
4,076,660
Cash surplus/Deficit
379,380
606,660
678,550
664,590
Financing
Borrowing
120,620
120,620
Repayment
106,660
13,960
-120,620
Interest
905
-905
Net cash from Financing
120,620
-106,660
-14,865
-905
Budgeted ending cash balance
500,000
500,000
663,685
663,685
ASC
Sales Budget
For the quarter ended June 30,2015
Month
Particulars
April
May
June
Total
Sale Units (a)
50,000
58,000
45,000
153,000
*Price per unit (b)
$29
$29
$29
87
Total Sales
$1,450,000
$1,682,000
$1,305,000
4,437,000
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