Basket Company specializes in unique baskets. Peak sales for one of their products, the Easter basket, occur in March ev
Posted: Sat Feb 19, 2022 2:32 pm
Basket Company specializes in unique baskets. Peak sales for one
of their products, the Easter basket, occur in March every year.
The company has estimated the following sales for the first five
months of the year for the Easter basket:
The baskets are considered deluxe as they are very intricate. As
such, the company can sell the baskets for $30. Based on history,
the company expects that 10% of sales are cash. Of the credit
sales, half is collected one month after sale and the remainder is
collected two months after sale. Accounts receivable as at January
1st was $50,000; all of which is expected to be
collected in January.
Each basket requires 2 meters of plastic. The cost per meter is
$2.00. The company wants to ensure it always has enough plastic on
hand and therefore has indicated that ending inventory will be 10%
of the following month's production needs for plastic. The company
had 1,080 meters of plastic on hand as at January 1st.
The company puts all purchases of plastic on account and pays for
it the month following purchase. Purchases of plastic in December
amounted to $2,000.
Due to the intricate design, the company uses substantially all
production line workers to create the baskets. Each basket takes
1.5 hours to produce and the direct labor rate per hour is
$12.00.
The company expects to incur $40,000 of operating expenses each
month, this includes $5,000 of depreciation expense. The company
plans to pay cash dividends of $3,000 in January.
There is a minimum cash balance set by management of $5,000 at the
end of each month. The company has access to a line of credit. Any
borrowings and repayments must be made in multiples of $1,000. The
company is subject to a 5% annual interest rate. For simplicity,
assume interest is not compounded.
Assume that borrowings are made at the beginning of the month and
repayments are made at the end of the month. The company started
the year with $10,000 in the bank.
Create a sales budget for the first quarter of the year
of their products, the Easter basket, occur in March every year.
The company has estimated the following sales for the first five
months of the year for the Easter basket:
The baskets are considered deluxe as they are very intricate. As
such, the company can sell the baskets for $30. Based on history,
the company expects that 10% of sales are cash. Of the credit
sales, half is collected one month after sale and the remainder is
collected two months after sale. Accounts receivable as at January
1st was $50,000; all of which is expected to be
collected in January.
Each basket requires 2 meters of plastic. The cost per meter is
$2.00. The company wants to ensure it always has enough plastic on
hand and therefore has indicated that ending inventory will be 10%
of the following month's production needs for plastic. The company
had 1,080 meters of plastic on hand as at January 1st.
The company puts all purchases of plastic on account and pays for
it the month following purchase. Purchases of plastic in December
amounted to $2,000.
Due to the intricate design, the company uses substantially all
production line workers to create the baskets. Each basket takes
1.5 hours to produce and the direct labor rate per hour is
$12.00.
The company expects to incur $40,000 of operating expenses each
month, this includes $5,000 of depreciation expense. The company
plans to pay cash dividends of $3,000 in January.
There is a minimum cash balance set by management of $5,000 at the
end of each month. The company has access to a line of credit. Any
borrowings and repayments must be made in multiples of $1,000. The
company is subject to a 5% annual interest rate. For simplicity,
assume interest is not compounded.
Assume that borrowings are made at the beginning of the month and
repayments are made at the end of the month. The company started
the year with $10,000 in the bank.
Create a sales budget for the first quarter of the year