Asked by albandari aljuaid on May 16, 2024
Verified
Michard Corporation makes one product and it provided the following information to help prepare the master budget for the next four months of operations:The budgeted selling price per unit is $125. Budgeted unit sales for April, May, June, and July are 7,600, 10,500, 13,800, and 12,900 units, respectively. All sales are on credit.Regarding credit sales, 20% are collected in the month of the sale and 80% in the following month.The ending finished goods inventory equals 20% of the following month's sales.The ending raw materials inventory equals 30% of the following month's raw materials production needs. Each unit of finished goods requires 4 pounds of raw materials. The raw materials cost $2.00 per pound.Regarding raw materials purchases, 30% are paid for in the month of purchase and 70% in the following month.The direct labor wage rate is $25.00 per hour. Each unit of finished goods requires 3.0 direct labor-hours.The variable selling and administrative expense per unit sold is $3.40. The fixed selling and administrative expense per month is $80,000.The expected cash collections for May is closest to:
A) $262,500
B) $1,022,500
C) $760,000
D) $950,000
Finished Goods Inventory
This refers to the value of goods in a company's inventory that are completed and ready for sale.
Master Budget
An inclusive financial planning document that consolidates all individual budgets related to sales, cost of goods sold, operations, overheads, and capital expenditures.
Credit Sales
Sales made by a business where payment is delayed as per agreed terms with the buyer.
- Evaluate the cash accumulations attributable to sales made through credit.
Verified Answer
Budgeted sales for April: 7,600 units x $125 per unit = $950,000
20% of April sales collected in April: $950,000 x 0.20 = $190,000
80% of April sales collected in May: $950,000 x 0.80 = $760,000
Budgeted sales for May: 10,500 units x $125 per unit = $1,312,500
20% of May sales collected in May: $1,312,500 x 0.20 = $262,500
80% of May sales collected in June: $1,312,500 x 0.80 = $1,050,000
Expected cash collections for May:
Collections from April sales: $760,000
Collections from May sales: $262,500
Total expected cash collections for May: $1,022,500
Therefore, the best choice is B.
Learning Objectives
- Evaluate the cash accumulations attributable to sales made through credit.
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