Exercise 8-1 (20 minutes) 1. | | April | May | June | Total | | | | | | | | February sales: $230,000 × 10% | $ 23,000 | | | $ 23,000 | | March sales: $260,000 × 70%, 10% | 182,000 | $ 26,000 | | 208,000 | | April sales: $300,000 × 20%, 70%, 10% | 60,000 | 210,000 | $ 30,000 | 300,000 | | May sales: $500,000 × 20%, 70% | | 100,000 | 350,000 | 450,000 | | June sales: $200,000 × 20% | | | 40,000 | 40,000 | | Total cash collections | $265,000 | $336,000 | $420,000 | $1,021,000 |

Observe that even though sales peak in May, cash collections peak in June. This occurs because the bulk of the company’s customers pay in the month following sale. The lag in collections that this creates is even more pronounced in some companies. Indeed, it is not unusual for a company to have the least cash available in the months when sales are greatest.

2. Accounts receivable at June 30:

From May sales: $500,000 × 10% | $ 50,000 | From June sales: $200,000 × (70% + 10%) | 160,000 | Total accounts receivable at June 30 | $210,000 |

Exercise 8-2 (10 minutes) | April | May | June | Quarter | Budgeted sales in units | 50,000 | 75,000 | 90,000 | 215,000 | Add desired ending inventory* | 7,500 | 9,000 | 8,000 | 8,000 | Total needs | 57,500 | 84,000 | 98,000 | 223,000 | Less beginning inventory | 5,000 | 7,500 | 9,000 | 5,000 | Required production | 52,500 | 76,500 | 89,000 | 218,000 |

*10% of the following month’s sales in units.

Exercise 8-3 (15 minutes) | Year 2 | Year 3 | | First | Second | Third | Fourth | First | Required production in bottles | 60,000 | 90,000 | 150,000 | 100,000 | 70,000 | Number of grams per bottle | × 3 | × 3 | × 3 | × 3 | × 3 | Total