Denver Corporation sells a seasonal product that has peak sales in the third quarter. The following...

 

Transcribed Image Text:

Denver Corporation sells a seasonal product that has peak sales in the third quarter. The following information concerns operation for Year 2- the coming year- and for the first two quarters of year 3: The company's single product sells for $8 per unit. Budgeted sales in units for the next six quarters are as follows (all sales are on credit): Year 2 Quarter 2 . 1 Budgeted unit sales 40,000 . 4 3 60,000 100,000 50,000 Year 3 Quarter 1 2 70,000 80,000 Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1, Year 2, the company's balance sheet showed $65,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are negligible and can be ignored. Required: The company desires an ending inventory at the end of each quarter equal to 30% of the budgeted unit sales for the next quarter. On December 31, Year 1, the company had 12,000 units on hand. 1. Prepare a sales budget. 2. Prepare a schedule of expected cash collections. 3. Prepare a purchases budget. 4. Assume that the sales staff provides information on expected sales and selling prices for items making up the sales budget. What concerns might you have with the sales staff's input in the sales budget? More generally, explain the importance of assessing any potential bias in information provided to the budget process. Denver Corporation sells a seasonal product that has peak sales in the third quarter. The following information concerns operation for Year 2- the coming year- and for the first two quarters of year 3: The company's single product sells for $8 per unit. Budgeted sales in units for the next six quarters are as follows (all sales are on credit): Year 2 Quarter 2 . 1 Budgeted unit sales 40,000 . 4 3 60,000 100,000 50,000 Year 3 Quarter 1 2 70,000 80,000 Sales are collected in the following pattern: 75% in the quarter the sales are made, and the remaining 25% in the following quarter. On January 1, Year 2, the company's balance sheet showed $65,000 in accounts receivable, all of which will be collected in the first quarter of the year. Bad debts are negligible and can be ignored. Required: The company desires an ending inventory at the end of each quarter equal to 30% of the budgeted unit sales for the next quarter. On December 31, Year 1, the company had 12,000 units on hand. 1. Prepare a sales budget. 2. Prepare a schedule of expected cash collections. 3. Prepare a purchases budget. 4. Assume that the sales staff provides information on expected sales and selling prices for items making up the sales budget. What concerns might you have with the sales staff's input in the sales budget? More generally, explain the importance of assessing any potential bias in information provided to the budget process.

Answer rating: 100% (QA)

Budgeted Unit Sales Selling Price per unit Total Sales Value Total Sales Value Collection ... View the full answer