# Chapter 9 - 95 .Itdeterminesthe...

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Chapter 9 Profit Planning Solutions to Questions 9-5 The level of sales impacts virtually every other aspect of the firm’s activities. It determines the  production budget, cash collections, cash disbursements, and selling and administrative budget that  in turn determine the cash budget and budgeted income statement and balance sheet. Exercise 9-1   1. July August September Total May sales: \$430,000 × 10%. .............. \$ 43,000 \$    43,000 June sales: \$540,000 × 70%, 10%. ..... 378,000 \$ 54,000 432,000 July sales: \$600,000 × 20%, 70%,  10%. .............................. 120,000 420,000 \$ 60,000 600,000 August sales: \$900,000 × 20%, 70%. .... 180,000 630,000 810,000 September sales: \$500,000 × 20%. ..............                                                         100,000             100,000     Total cash collections. ......... \$541,000 \$654,000 \$790,000 \$1,985,000 Notice that even though sales peak in August, cash collections peak in September. 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 September 30: From August sales: \$900,000 × 10%. ................................... \$ 90,000 From September sales:  \$500,000 × (70% + 10%). ..................................................   400,000     Total accounts receivable. ..................................................... \$490,000

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Exercise 9-2   July August Septembe r Quarter Budgeted sales in units. ..................... 30,000 45,000 60,000 135,000 Add desired ending inventory*. ..........   4,500       6,000       5,000           5,000     Total needs. ........................................ 34,500 51,000 65,000 140,000 Less beginning inventory. ..................   3,000       4,500       6,000           3,000     Required production. .......................... 31,500 46,500 59,000 137,000 *10% of the following month’s sales

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Exercise 9-3  Quarter—Year 2 Year 3 First Second Third Fourth First Required production of calculators. ...................... 60,000 90,000 150,000 100,000 80,000 Number of chips per calculator. ...........................           ×       3
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Chapter 9 - 95 .Itdeterminesthe...

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