Seasonal Products Corporation expects the following monthly sales $10,000 14,000
ID: 2559827 • Letter: S
Question
Seasonal Products Corporation expects the following monthly sales $10,000 14,000 20,000 25,000 30,000 22,000 January $20,000 July February March 15,000 August April May June Total sales $168,000 5,000 September 3,000 October 1.000 November 3,000 December Sales are 20 percent for cash in a given month, with the remainder going into accounts receivable. All 80 percent of the credit sales are collected in the month following the sale. Seasonal Products sells all of its goods for $2.00 each and produces them for $1.00 each. Seasonal Products uses level production, and average monthly production is equal to annual production divided by 12.Explanation / Answer
Answer:
a
Production and inventory schedule in units
Beginning Inventory
+Production1 (level)
–Sales2
= Ending Inventory ($1 per unit)
January
5,000
7,000
10,000
2,000
February
2,000
7,000
7,500
1,500
March
1,500
7,000
2,500
6,000
April
6,000
7,000
1,500
11,500
May
11,500
7,000
500
18,000
June
18,000
7,000
1,500
23,500
July
23,500
7,000
5,000
25,500
August
25,500
7,000
7,000
25,500
September
25,500
7,000
10,000
22,500
October
22,500
7,000
12,500
17,000
November
17,000
7,000
15,000
9,000
December
9,000
7,000
11,000
5,000
1
$168,000 sales/$2 price = 84,000 units
84,000 units/12 months = 7,000 units per month
2
Monthly dollar sales/$2 = number of units
_______________________________________________________--
2
Cash Receipts Schedule (take dollar values from problem statement)
Jan.
Feb.
Mar.
Apr.
May
June
Sales
$20,000
$15,000
$ 5,000
$3,000
$1,000
$3,000
20% Cash sales
4,000
3,000
1,000
600
200
600
80% Prior month’s sales
12,000*
16,000
12,000
4,000
2,400
800
Total receipts
$16,000
$19,000
$13,000
$4,600
$2,600
$1,400
*based on December sales of $15,000
July
Aug.
Sept.
Oct.
Nov.
Dec.
Sales
$10,000
$14,000
$20,000
$25,000
$30,000
$22,000
20% Cash sales
2,000
2,800
4,000
5,000
6,000
4,400
80% Prior month’s sales
2,400
8,000
11,200
16,000
20,000
24,000
Total receipts
$ 4,400
$10,800
$15,200
$21,000
$26,000
$28,400
______________________________________________________________________________
C.
Cash Payments Schedule
Constant production
Jan.
Feb.
Mar.
Apr.
May
June
7,000 units × $1
$ 7,000
$ 7,000
$ 7,000
$ 7,000
$ 7,000
$ 7,000
Other cash payments
6,000
6,000
6,000
6,000
6,000
6,000
Total payments
$13,000
$13,000
$13,000
$13,000
$13,000
$13,000
July
Aug.
Sept.
Oct.
Nov.
Dec.
7,000 units × $1
$ 7,000
$ 7,000
$ 7,000
$ 7,000
$ 7,000
$ 7,000
Other cash payments
6,000
6,000
6,000
6,000
6,000
6,000
Total cash payments
$13,000
$13,000
$13,000
$13,000
$13,000
$13,000
_______________________________________________________________________________________________
d.
Cash Budget
Jan.
Feb.
Mar.
Apr.
May
June
Cash flow
$3,000
$ 6,000
-0-
($ 8,400)
($10,400)
($11,600)
Beginning cash
1,000
4,000
10,000
10,000
1,600
1,000
Cumulative cash balance
4,000
10,000
10,000
1,600
(8,800)
(10,600)
Monthly loan or (repayment)
-0-
-0-
-0-
-0-
9,800
11,600
Cumulative loan
-0-
-0-
-0-
-0-
9,800
21,400
Ending cash balance
$4,000
$10,000
$10,000
$ 1,600
$ 1,000
$ 1,000
July
Aug.
Sept.
Oct.
Nov.
Dec.
Cash flow
($ 8,600)
($2,200)
$ 2,200
$ 8,000
$13,000
$15,400
Beginning cash
1,000
1,000
1,000
1,000
1,000
1,000
Cumulative cash balance
(7,600)
(1,200)
3,200
9,000
14,000
16,400
Monthly loan or (repayment)
8,600
2,200
(2,200)
(8,000)
(13,000)
(9,000)
Cumulative loan
30,000
32,200
30,000
22,000
9,000
-0-
Ending cash balance
$ 1,000
$ 1,000
$ 1,000
$ 1,000
$ 1,000
$ 7,400
e.
Assets
Cash
Accounts Receivable
Inventory
Total Current
January
$ 4,000
$16,000
$ 2,000
$22,000
February
10,000
12,000
1,500
23,500
March
10,000
4,000
6,000
20,000
April
1,600
2,400
11,500
15,500
May
1,000
800
18,000
19,800
June
1,000
2,400
23,500
26,900
July
1,000
8,000
25,500
34,500
August
1,000
11,200
25,500
37,700
September
1,000
16,000
22,500
39,500
October
1,000
20,000
17,000
38,000
November
1,000
24,000
9,000
34,000
December
7,400
17,600
5,000
30,000
The instructor may wish to relate this table to the case budget to show how the buildup in current assets is financed. Also, the table shows how the assets build up from the least liquid current asset (inventory) to the next liquid asset (accounts receivables), and finally by December, the cycle is ready to start over with the flow into the cash balance when the firm eliminates its final loan balance.
Beginning Inventory
+Production1 (level)
–Sales2
= Ending Inventory ($1 per unit)
January
5,000
7,000
10,000
2,000
February
2,000
7,000
7,500
1,500
March
1,500
7,000
2,500
6,000
April
6,000
7,000
1,500
11,500
May
11,500
7,000
500
18,000
June
18,000
7,000
1,500
23,500
July
23,500
7,000
5,000
25,500
August
25,500
7,000
7,000
25,500
September
25,500
7,000
10,000
22,500
October
22,500
7,000
12,500
17,000
November
17,000
7,000
15,000
9,000
December
9,000
7,000
11,000
5,000
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