Exercise 8-1 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

Notice 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 April May June Quarter
Budgeted unit sales 50,000 75,000 90,000 215,000
Add desired units of ending finished goods inventory* 7,500 9,000 8,000 8,000
Total needs 57,500 84,000 98,000 223,000
Less units of beginning finished goods inventory 5,000 7,500 9,000 5,000
Required production in units 52,500 76,500 89,000 218,000

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

Exercise 8-3 Quarter—Year 2 First Second Third Fourth Year
Required production in units of finished goods 60,000 90,000 150,000 100,000 400,000
Units of raw materials needed per unit of finished goods × 3 × 3 × 3 × 3 × 3
Units of raw materials needed to meet production 180,000 270,000 450,000 300,000 1,200,000
Add desired units of ending raw materials inventory 54,000 90,000 60,000 42,000 42,000
Total units of raw materials needed