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Charlie's Sales Budget

 

Recall that Charlie's sales forecast looked like this:
 
Charlie's Sales Budget (Chairs per month)
  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Total sales          4          2          2          2          2          3          3          2          4          6          4          2        36

Charlie charges $325 per chair, so the monthly revenues are:

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total
Anticipated sales revenues  $1,300  $650  $650  $650  $650  $975  $975  $650  $1,300  $1,950  $1,300  $650  $11,700

We are told that revenues are split 50/50 between the month of the sale and the month following. With this information, we can determine that cash inflows from sales will be as follows:

  Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total for the year Jan
Receipt of cash is split                            
50% of this month  $ 650.00  $ 325.00  $ 325.00  $ 325.00  $ 325.00  $ 487.50  $ 487.50  $ 325.00  $ 650.00  $    975.00  $    650.00  $ 325.00  $   5,850.50  
50% of last month    $ 650.00  $ 325.00  $ 325.00  $ 325.00  $ 325.00  $ 487.50  $ 487.50  $ 325.00  $    650.00  $    975.00  $ 650.00  $   5,525.50  $ 325.00
Cash realized per month  $ 650.00  $ 975.00  $ 650.00  $ 650.00  $ 650.00  $ 812.50  $ 975.00  $ 812.50  $ 975.00  $ 1,625.00  $ 1,625.00  $ 975.00  $ 11,376.00  

Note that there is $325.00 in the January column at the extreme right end of the table. This corresponds to January of year 2, and the $325 is second half of the collections from December of year 1. Where will this amount appear? Why?  Answer

All of the amounts in the tables above are derived through cell referencing. If Charlie's sales price, sales quantities, or the pattern of collections [e.g., the 50/50 split becomes 60/40], any changes will be immediately reflected in the cash realized per month. Set up a spreadsheet to reproduce the values in the tables above. When your own budget worksheet numbers agree with the answers given, your ready for the next step: planning purchases of raw materials inventory. Click "next" to continue.

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Copyright © 2004 Gerald M. Myers. All rights reserved. This site has been developed as aid to instructors and students in managerial accounting. The scenarios contained herein are not intended to reflect effective or ineffective handling of managerial situations. Any resemblance to existing organizations is purely coincidental.
Last modified: August 03, 2005