Badlands, Inc. manufactures a household fan that sells for $25 per unit. All sal
ID: 2514545 • Letter: B
Question
Badlands, Inc. manufactures a household fan that sells for $25 per unit. All sales are on account, with 30 percent of sales collected in the month of sale and 70 percent collected in the following month. The data that follow were extracted from the company’s accounting records.
Badlands maintains a minimum cash balance of $20,000. Total payments in January 20x1 are budgeted at $220,000.
A schedule of cash collections for January and February of 20x1 revealed the following receipts for the period:
March 20x1 sales are expected to total 8,500 units.
Finished-goods inventories are maintained at 30 percent of the following month’s sales.
The December 31, 20x0, balance sheet revealed the following selected figures: cash, $23,600; accounts receivable, $126,000; and finished goods, $24,000.
Required:
Determine the number of units that Badlands sold in December 20x0.
Compute the sales revenue for March 20x1.
Compute the total sales revenue to be reported on Badlands’ budgeted income statement for the first quarter of 20x1.
Determine the accounts receivable balance to be reported on the March 31, 20x1, budgeted balance sheet.
Calculate the number of units in the December 31, 20x0, finished-goods inventory.
Calculate the number of units of finished goods to be manufactured in January 20x1.
Calculate the financing required in January, if any, to maintain the firm’s minimum cash balance.
Cash Receipts January February From December 31 accounts receivable $ 126,000 From January sales 87,000 $ 133,000 From February sales 75,000Explanation / Answer
Solution:
Number of units sold in December 20x0:
Account Receivable on 31 december 20x0= $126000
As given 70% of month sale are collected in following month.
Therefore Sales made in December 20x0 = $126000 / 70% = $180000
No. of units sold in December 20x0 = Sales / Price per unit = $180000/$25 = 7200 units
Sales revenue for March 20x1
Expected Sales units in march 20x1= 8500
Sale price per unit = $25
Sales Revenue in march 20x1= 8500 * $25 = $212500
Total sales revenue to be reported on Badlands’ budgeted income statement for the first quarter of 20x1.
January Sales = $87000 +$133000 = $220000
February sales = $75000 / 30% = $250000
March Sales = $212500
Sales Revenue For First Quarter of 20x1 = $220000 +$250000+ $212500 = $682500
Accounts receivable balance to be reported on the March 31, 20x1, budgeted balance sheet:
Account Receivable balance on March 31, 20x1 = 70% of March Sales = $212500 * 70% = $148750
Number of units in the December 31, 20x0, finished-goods inventory
Finished goods inventory = 30% of following month sales
Finished goods inventory at December 31, 20x0 = January sales units * 30%
= ($220000 / $25) * 30% = 8800 * 30% = 2640 units
Number of units of finished goods to be manufactured in January 20x1:
Number of units in December 31, 20x0 (opening Finished goods inventory) = 2640units
Number of units in January 31, 20x1 (Closing Finished goods inventory) = 30% of February sales units
= ($250000/25) * 30% = 3000 units
January Sales units = January Sales / Price per Unit = $220000 / $25 = 8800 units
Number of units of finished goods to be manufactured in January 20x1 = Sales of January+Closing Inventory- Opening Inventory
= 8800 + 3000 - 2640 = 9160 units
Financing required in January, if any, to maintain the firm’s minimum cash balance:
Opening cash Balance = $23600
Cash receipts during January 20x1 = $126000 + $87000 = $213000
Budgeted Cash Payments during January 20x1 = $220000
Cash Balance at January 31, 20x1 (at end of January) = Opening Cash Balnce + Cash receipts - Cash Payments
=$23600 + $213000 - $220000 = $16600
Financing Required in January, 20x1 = Minimum Cash Balance required - Cash Balance at the end of January
= $20000 - $16600 = $3400
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