Gelato Company manufactures and sells an ice spoon that has seasonal variations in demand, with peak sales coming in the third quarter. The following information concerns operations for Year 2- the coming year- and for the first two quarters of Year 3: The company’s single product sells for $7 per unit. Budgeted sales in units for the next six quarters are as follows: Year 2 quarter Year 3 quarter 1 2 3 4 1 3 Budgeted sales: 32,000 57,000 96,000 41,000 40,000 63,000 Sales are collected in the following pattern: 80% in the quarter the sales are made, and the remaining 20% in the following quarter. On January 1, Year 2, the company’s balance sheet showed $56,000 in accounts receivable, all of which will be collected by the end of first quarter. Bad debts are negligible and can be ignored. The company desires an ending inventory of finished units on hand at the end of each quarter equal to 35% of the budgeted sales for the next quarter. On December 31, Year 1, the company had 8,960 units on hand. 2 pounds of raw materials are required to complete one unit of product. The company requires an ending inventory of raw materials on hand at the end of each quarter equal to 8% of the production needs of the following quarter. On December 31, Year 1, the company had 12,000 pounds of raw materials on hand. The raw material costs $2 per pound. Purchases of raw material are paid for in the following pattern: 55% paid in the quarter the purchases are made, and the remaining 45% paid in the following quarter. On January 1, Year 2, the company’s balance sheet showed $61,500 in accounts payable for raw material purchases, all of which will be paid for in the first quarter of the year. Required: Prepare the following budgets and schedules for the Year 2, showing both quarterly and total figures. Part 1: A schedule of expected cash collections. A production budget. A direct materials budget. A schedule of expected cash payments for material purchases.

Gelato Company manufactures and sells an ice spoon that has seasonal variations in demand, with peak sales coming in the third quarter. The following information concerns operations for Year 2- the coming year- and for the first two quarters of Year 3: The company’s single product sells for $7 per unit. Budgeted sales in units for the next six quarters are as follows: Year 2 quarter Year 3 quarter 1 2 3 4 1 3 Budgeted sales: 32,000 57,000 96,000 41,000 40,000 63,000 Sales are collected in the following pattern: 80% in the quarter the sales are made, and the remaining 20% in the following quarter. On January 1, Year 2, the company’s balance sheet showed $56,000 in accounts receivable, all of which will be collected by the end of first quarter. Bad debts are negligible and can be ignored. The company desires an ending inventory of finished units on hand at the end of each quarter equal to 35% of the budgeted sales for the next quarter. On December 31, Year 1, the company had 8,960 units on hand. 2 pounds of raw materials are required to complete one unit of product. The company requires an ending inventory of raw materials on hand at the end of each quarter equal to 8% of the production needs of the following quarter. On December 31, Year 1, the company had 12,000 pounds of raw materials on hand. The raw material costs $2 per pound. Purchases of raw material are paid for in the following pattern: 55% paid in the quarter the purchases are made, and the remaining 45% paid in the following quarter. On January 1, Year 2, the company’s balance sheet showed $61,500 in accounts payable for raw material purchases, all of which will be paid for in the first quarter of the year. Required: Prepare the following budgets and schedules for the Year 2, showing both quarterly and total figures. Part 1: A schedule of expected cash collections. A production budget. A direct materials budget. A schedule of expected cash payments for material purchases.

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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Gelato Company manufactures and sells an ice spoon that has seasonal variations in demand, with peak sales coming in the third quarter. The following information concerns operations for Year 2- the coming year- and for the first two quarters of Year 3:

The company’s single product sells for $7 per unit. Budgeted sales in units for the next six quarters are as follows:

	Year 2 quarter	Year 3 quarter
	1	2	3	4	1	3
Budgeted sales:	32,000	57,000	96,000	41,000	40,000	63,000

Sales are collected in the following pattern: 80% in the quarter the sales are made, and the remaining 20% in the following quarter. On January 1, Year 2, the company’s balance sheet showed $56,000 in accounts receivable, all of which will be collected by the end of first quarter. Bad debts are negligible and can be ignored.
The company desires an ending inventory of finished units on hand at the end of each quarter equal to 35% of the budgeted sales for the next quarter. On December 31, Year 1, the company had 8,960 units on hand.
2 pounds of raw materials are required to complete one unit of product. The company requires an ending inventory of raw materials on hand at the end of each quarter equal to 8% of the production needs of the following quarter. On December 31, Year 1, the company had 12,000 pounds of raw materials on hand.
The raw material costs $2 per pound. Purchases of raw material are paid for in the following pattern: 55% paid in the quarter the purchases are made, and the remaining 45% paid in the following quarter. On January 1, Year 2, the company’s balance sheet showed $61,500 in accounts payable for raw material purchases, all of which will be paid for in the first quarter of the year.

Required:

Prepare the following budgets and schedules for the Year 2, showing both quarterly and total figures.

Part 1:

A schedule of expected cash collections.
A production budget.
A direct materials budget.
A schedule of expected cash payments for material purchases.

Part 2:

The company has hired a new marketing manager who insists that the unit sales can be dramatically increased by dropping the selling price from $7 to $6. The marketing manager would like to use the following projections in the budget:

	Year 2 quarter	Year 3 quarter
	1	2	3	4	1	3
Budgeted sales:	40,000	65,000	120,000	70,000	50,000	70,000

What are the total expected cash collections for the year under this revised budget ?
What is the total required production for the year under this revised budget ?
What is the total cost of raw material to be purchased for the year under this revised
What are the total expected cash disbursements for raw materials for the year under this revised budget?
After seeing this revised budget, the production manager cautioned that due to the limited availability of a complex milling machine, the plant can produce no more than 90,000 units in any one quarter. Is this a potential problem? If so what can be done about it?

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