Question

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:

Data Year 2 Quarter Year 3 Quarter
1 2 3 4 1 2
Budgeted unit sales 45,000 70,000 105,000 70,000 90,000 100,000
Selling price per unit $7 per unit
a. What are the total expected cash collections for the year under this revised budget?
b. What is the total required the 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?

Answer 1

To compute the total expected cash collections, multiply the budgeted unit sales by the selling price for each quarter and sum them up. The total required production is the sum of budgeted unit sales for all quarters. A milling machine production constraint is a potential issue for quarters exceeding 80,000 units.

Step-by-step explanation:

To calculate the total expected cash collections for the year under the revised budget, we need to multiply the budgeted unit sales by the revised selling price. Using the provided figures, the calculation would be as follows: (45,000 units × $7) + (70,000 units × $7) + (105,000 units × $7) + (70,000 units × $7) + (90,000 units × $7) + (100,000 units × $7). After performing these calculations, you will get the total cash collections.

For the total required production for the year, simply add up the budgeted unit sales for each quarter: 45,000 + 70,000 + 105,000 + 70,000 + 90,000 + 100,000 units.

The total cost of raw materials to be purchased for the year would depend on additional data such as the cost per unit for raw materials, which is not provided in the question. Supposing the cost was available, you would multiply the cost per unit of raw material by the total number of units required.

To determine the total expected cash disbursements for raw materials, you would multiply the total units required for production by the cost per unit for raw materials, taking into account any payment terms or periods.

The production constraint of 80,000 units per quarter due to the capacity of a milling machine is a potential problem, as the budgeted unit sales for the third quarter in Year 2 and the second quarter in Year 3 exceed this maximum production limit.