The accounting team at Kingbird Corp. plans to get a jump-start on its budget for the second quarter, since the first quarter is going well. Team members want to make sure to determine the cash effects of the company’s sales as well as its biggest production-related cash expenditure, direct materials. The team has gathered the following information: 1. The budgeted selling price for the year is $4.00 per unit. Sales volumes are budgeted as follows for the last month of quarter 1, for all of quarter 2, and for part of quarter 3. March April May June July August 23,800 22,000 25,500 27,800 23,500 23,300 2. Historically, 25% of Kingbird’s sales are cash sales. Of the remaining credit sales, 40% are collected in the month of sale, while 56% are collected the following month. The remainder is deemed uncollectible. 3. Management sets its ending FG Inventory goal at 10% of the following month’s sales volume. The accounting team expects this policy will be met at the beginning of the second quarter. 4. The target ending inventory for Kingbird’s primary direct material is 20% of the following month’s production needs, since it’s not unusual for suppliers to stock out of this key resource. Each completed unit requires 4 pounds of DM at an expected cost of $0.40 per pound. 5. Kingbird pays for 35% of its purchases in the month of purchase and 65% the month after purchase. Total budgeted purchases in March are $16,300. For all quarterly budgets, report monthly amounts as well as the total for the quarter.

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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The accounting team at Kingbird Corp. plans to get a jump-start on its budget for the second quarter, since the first quarter is going well. Team members want to make sure to determine the cash effects of the company’s sales as well as its biggest production-related cash expenditure, direct materials. The team has gathered the following information:

The budgeted selling price for the year is $4.00 per unit. Sales volumes are budgeted as follows for the last month of quarter 1, for all of quarter 2, and for part of quarter 3.

March		April		May		June		July		August
23,800		22,000		25,500		27,800		23,500		23,300

Historically, 25% of Kingbird’s sales are cash sales. Of the remaining credit sales, 40% are collected in the month of sale, while 56% are collected the following month. The remainder is deemed uncollectible.

Management sets its ending FG Inventory goal at 10% of the following month’s sales volume. The accounting team expects this policy will be met at the beginning of the second quarter.

The target ending inventory for Kingbird’s primary direct material is 20% of the following month’s production needs, since it’s not unusual for suppliers to stock out of this key resource. Each completed unit requires 4 pounds of DM at an expected cost of $0.40 per pound.

Kingbird pays for 35% of its purchases in the month of purchase and 65% the month after purchase. Total budgeted purchases in March are $16,300.

For all quarterly budgets, report monthly amounts as well as the total for the quarter.

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