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Homework answers / question archive / Jiklo Limited has the following sales budget for the next four months for its top-of-the line widgets: May June July August Units 4,000 5,000 6,000 6,500 Sales ($ millions) 20 25 33 39 Each widget requires 15 grams of Palladium, which costs $70 per gram
Jiklo Limited has the following sales budget for the next four months for its top-of-the line widgets:
|
May |
June |
July |
August |
|
|
Units |
4,000 |
5,000 |
6,000 |
6,500 |
|
Sales ($ millions) |
20 |
25 |
33 |
39 |
Each widget requires 15 grams of Palladium, which costs $70 per gram.
32% of accounts receivable are collected in the month of sale; 65% are collected in the following month and 3% are expected to go bad. A 2% discount is given to customers who pay within the month of sale.
Raw materials inventory at the end of each month should be 28% of the following month's production requirements. 30% of the cost of raw materials purchases is paid in the month of purchase and the remainder is paid in the following month.
Finished goods inventory at the end of each month should be 58% of the following month's sales requirements. At the beginning of May, the inventory is expected to be 3,000 units.
Prepare production and raw materials budgets and use them to answer the following questions:
Calculate the number of widgets that need to be produced in June.
Calculate the number of widgets that need to be produced in July.
Calculate the required inventory of Palladium in grams at the end of May.
Calculate the required inventory of Palladium in grams at the end of June.
Calculate the amount of Palladium in grams expected to be used for production in May.
Calculate the amount of Palladium in grams expected to be used for production in June.
Calculate the required amount of Palladium in grams that must be purchased in May.
Calculate the required amount of Palladium in grams that must be purchased in June.
Calculate the expected cash collections from receivables for June, in millions of dollars. Show your answer to the nearest $0.1 million (for example, $123,456,789 should be shown as 123.5 or $123.5).
Calculate the expected cash disbursements for raw materials for June, in millions of dollars. Show your answer to the nearest $0.1 million (for example, $12,345,678 should be shown as 12.3 or $12.3).
|
Production Budget (in units) |
May |
June |
July |
|
Required closing inventory of finished goods |
2,900 |
3,480 |
3,770 |
|
Add: Expected sales during the month |
4,000 |
5,000 |
6,000 |
|
Total needs of finished goods |
6,900 |
8,480 |
9,770 |
|
Less: Beginning inventory of finished goods |
3,000 |
2,900 |
3,480 |
|
Total production requirement in each month |
3,900 |
5,580 |
6,290 |
Working notes:
1. Closing inventory for each month = 58% of expected sales in next month.
2. Beginning inventory for June and July will be closing inventory for May and June respectively.
|
Raw materials budget (in grams) |
May |
June |
July |
|
Total widgets requirement in each month |
3,900 |
5,580 |
6,290 |
|
Total raw material requirement for above production(gms) |
58,500 |
83,700 |
94,350 |
|
Add: Required closing inventory of raw materials(gms) |
23,436 |
26,418 |
|
|
Total raw material needs |
81,936 |
110,118 |
|
|
Less: Beginning inventory of raw materials |
16,380 |
23,436 |
|
|
Total raw material to be purchased in each month |
65,556 |
86,682 |
Working notes:
1. Each widget requires 15 grams of raw material. So, total raw material requirement is calculated as 15*’Total widgets requirement in each month’.
2. Further, closing inventory required for each month = 28% of raw materials requirement for production for next month.
3. Beginning inventory for May = Closing inventory for previous month (April), which is 28% of raw material requirement for May. So, beginning inventory for May = 28%*58,500 = 16,380 gms. Beginning inventory for June = Closing inventory for May.
|
Cash collections budget |
May |
June |
July |
August |
|
Total expected sales (in $ millions) |
20 |
25 |
33 |
39 |
|
32% collection in same month |
6.4 |
8 |
10.56 |
12.48 |
|
Less: 2% discount on same month payment |
0.128 |
0.16 |
0.2112 |
0.2496 |
|
Collections from same month sales |
6.272 |
7.84 |
10.3488 |
12.2304 |
|
65% collection in following month |
13 |
16.25 |
21.45 |
|
|
Total expected cash collection in each month |
20.84 |
26.5988 |
33.6804 |
|
Cash dusbursement budget |
May |
June |
|
Total raw material to be purchased in each month(in gms) |
65,556 |
86,682 |
|
Cost of purchase of raw materials ($70 per gm) |
$4,588,920 |
$6,067,740 |
|
30% payment in same month |
$1,376,676 |
$1,820,322 |
|
70% payment in following month |
$3,212,244 |
|
|
Expected cash disbursements |
$5,032,566 |
Based on above budgets, the questions are answered as follows:
1. Number of widgets required to be produced in June = 5,580 widgets
2. Number of widgets required to be produced in July = 6,290 widgets
3. Required inventory of palladium in grams at the end of May = 23,436 grams
4. Required inventory of palladium in grams at the end of June = 26,418 grams
5. Amount of palladium in grams expected to be used for production in May = 58,500 grams
6. Amount of palladium in grams expected to be used for production in June = 83,700 grams
7. Required amount of palladium in grams that must be purchased in May =65,556 grams
8. Required amount of palladium in grams that must be purchased in June =86,682 grams
9. Expected cash collections from receivables in June in millions of dollars = $20.8 millions
10. Expected cash disbursements for raw materials in June, in millions of dollars = $5.03 millions
