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Bailey manufactures dolls and estimates sales of $120,000 for November, $100,000 for December, and $150,000 for January. Each doll sells for $20 and the cost to make each one is $10. Historically 50% of sales will be collected in the month of sale and the remaining 50% the following month and this pattern is expected to continue. The beginning cash balance for November is $20,000 and beginning Accounts Receivable was $45,000. Beginning inventory in November is 2,000 dolls and Bailey want to maintain at least 20% of the next month's sale for ending inventory. Fixed costs each month is $10,000. Production and fixed costs are all paid when incurred. What is the estimated cash ending balance for November? O $25,000 O $70,000 O $80,000 O $65,000

Bailey manufactures dolls and estimates sales of $120,000 for November, $100,000 for December, and $150,000 for January. Each doll sells for $20 and the cost to make each one is $10. Historically 50% of sales will be collected in the month of sale and the remaining 50% the following month and this pattern is expected to continue. The beginning cash balance for November is $20,000 and beginning Accounts Receivable was $45,000. Beginning inventory in November is 2,000 dolls and Bailey want to maintain at least 20% of the next month's sale for ending inventory. Fixed costs each month is $10,000. Production and fixed costs are all paid when incurred. What is the estimated cash ending balance for November? O $25,000 O $70,000 O $80,000 O $65,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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### Cash Budget Calculation Exercise **Problem Statement:** Bailey manufactures dolls and estimates sales of $120,000 for November, $100,000 for December, and $150,000 for January. Each doll sells for $20 and the cost to make each one is $10. Historically, 50% of sales will be collected in the month of sale and the remaining 50% the following month, and this pattern is expected to continue. The beginning cash balance for November is $20,000 and beginning Accounts Receivable was $45,000. Beginning inventory in November is 2,000 dolls, and Bailey wants to maintain at least 20% of the next month's sale for ending inventory. Fixed costs each month are $10,000. Production and fixed costs are all paid when incurred. **Question:** What is the estimated cash ending balance for November? **Options:** - $25,000 - $70,000 - $80,000 - $65,000 **Solution Approach:** 1. **Sales Collection:** - November sales: $120,000 - Collection in November: 50% of $120,000 = $60,000 - Collection from October (as receivables): $45,000 Total cash collection in November: $60,000 + $45,000 = $105,000 2. **Production Costs:** - Cost per doll: $10 - Sales for December: $100,000 - Ending inventory required: 20% of 5,000 units (December sales) = 1,000 units Total production required in November: - Sales units for November: $120,000 / $20 = 6,000 units - Ending inventory: 1,000 units - Beginning inventory: 2,000 units Units to produce = (6,000 + 1,000 - 2,000) = 5,000 units Production cost: 5,000 units x $10 = $50,000 3. **Fixed Costs:** - Fixed costs in November: $10,000 4. **Cash Budget:** - Beginning cash balance: $20,000 - Cash Collections: $105,000 - Cash Outflows: - Production costs: $50,000
Transcribed Image Text:### Cash Budget Calculation Exercise **Problem Statement:** Bailey manufactures dolls and estimates sales of $120,000 for November, $100,000 for December, and $150,000 for January. Each doll sells for $20 and the cost to make each one is $10. Historically, 50% of sales will be collected in the month of sale and the remaining 50% the following month, and this pattern is expected to continue. The beginning cash balance for November is $20,000 and beginning Accounts Receivable was $45,000. Beginning inventory in November is 2,000 dolls, and Bailey wants to maintain at least 20% of the next month's sale for ending inventory. Fixed costs each month are $10,000. Production and fixed costs are all paid when incurred. **Question:** What is the estimated cash ending balance for November? **Options:** - $25,000 - $70,000 - $80,000 - $65,000 **Solution Approach:** 1. **Sales Collection:** - November sales: $120,000 - Collection in November: 50% of $120,000 = $60,000 - Collection from October (as receivables): $45,000 Total cash collection in November: $60,000 + $45,000 = $105,000 2. **Production Costs:** - Cost per doll: $10 - Sales for December: $100,000 - Ending inventory required: 20% of 5,000 units (December sales) = 1,000 units Total production required in November: - Sales units for November: $120,000 / $20 = 6,000 units - Ending inventory: 1,000 units - Beginning inventory: 2,000 units Units to produce = (6,000 + 1,000 - 2,000) = 5,000 units Production cost: 5,000 units x $10 = $50,000 3. **Fixed Costs:** - Fixed costs in November: $10,000 4. **Cash Budget:** - Beginning cash balance: $20,000 - Cash Collections: $105,000 - Cash Outflows: - Production costs: $50,000
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