Bombs Away Video Games Corporation has forecasted the following monthly sales:
January $ 100,000 July $ 45,000
February 93,000 August 45,000
March 25,000 September 55,000
April 25,000 October 85,000
May 20,000 November 105,000
June 35,000 December 123,000
Total sales = $768,000
Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for $5 per unit and costs $2 per unit to produce. A level production policy is followed. Each month's production is equal to annual sales (in units) divided by 12.
Of each month's sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.
(a)Construct a monthly production and inventory schedule in units. Beginning inventory in January is 25,000 units.
BOMBS AWAY VIDEO GAMES CORPORATION
Production and inventory schedule in units
Beginning
inventory + Production - Sales = Ending
inventory
January 25,000 + - =
February + - =
March + - =
April + - =
May + - =
June + - =
July + - =
August + - =
September + - =
October + - =
November + - =
December + - =
(b)Prepare a monthly schedule of cash receipts. Sales in December before the planning year are $100,000.
(c)Determine a cash payments schedule for January through December. The production costs of $2 per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $45,000 per month.
(d)Prepare a monthly 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 $5,000, which is also the minimum desired.