Chapter 6, Problem 22P

Esquire Products Inc. expects the following monthly sales:

Cash sales are 40 percent in a given month, with the remainder going into accounts receivable. All receivables are collected in the month following the sale. Esquire sells all of its goods for $\text{\$2}$ each and produces them for $\text{\$1}$ each. Esquire uses level production, and average monthly production is equal to annual production divided by 12.

a. Generate a monthly production and inventory schedule in units. Beginning inventory in January is 12,000 units. (Note: To do part a, you should work in terms of units of production and units of sales.)

b. Determine a cash receipts schedule for January through December. Assume that dollar sales in the prior December were $\text{\$20,000}$ . Work part b using dollars.

c. Determine a cash payments schedule for January through December. The production costs ( $\text{\$1}$ per unit produced) are paid for in the month in which they occur. Other cash payments (besides those for production costs) are $\text{\$7,400}$ per month.

d. Construct a cash budget for January through December using the cash receipts schedule from part b and the cash payments schedule from part c. The beginning cash balance is $\text{\$3,000}$ , which is also the minimum desired.

e. Determine total current assets for each month. Include cash, accounts receivable, and inventory. Accounts receivable equal sales minus 40 percent of sales for a given month. Inventory is equal to ending inventory (part a) times the cost of $\text{\$1}$ per unit.