Chapter 04: Financial Forecasting
4-11
Beginning inventory at these costs on July 1 was 3,000 units. From July 1 to December
1, 2011, Bradley produced 12,000 units. These units had a material cost of $3, labor of $5,
and overhead of $3 per unit. Bradley uses FIFO inventory accounting.
Assuming that Bradley sold 13,000 units during the last six months of the year at $16
each, what is its gross profit? What is the value of ending inventory?
4-14. Solution:
Bradley Corporation
Sales (13,000 @ $16)
$208,000
Cost of goods sold:
Old inventory:
Quantity (units) ………..
3,000
Cost per unit …………….
$ 8
Total …………………………
$ 24,000
New inventory:
Quantity (units) ………..
10,000
Cost per unit …………….
$ 11
Total …………………………
$ 110,000
Total cost of goods
sold ……………………….
$134,000
Gross profit ……………….
$ 74,000
Value of ending
inventory:
Beginning inventory
(3,000 $8) ……………..
$ 24,000
+ Total production
(12,000 $11) ………….
$132,000
Total inventory
available for sale ………
$156,000
– Cost of good sold ……
$134,000
Ending inventory ………..
$ 22,000
Or
2,000 units $11 = $22,000
Chapter 04: Financial Forecasting
4-12
15. Gross profit and ending inventory (LO2) Assume in Problem 14 that the Bradley
Corporation used LIFO accounting instead of FIFO; what would its gross profit be? What
would be the value of ending inventory?
4-15. Solution:
Bradley Corporation(Continued)
Sales (13,000 @ $16)
$208,000
Cost of goods sold:
New inventory:
Quantity (units) ………..
12,000
Cost per unit …………….
$ 11
Total …………………………
$132,000
Old inventory:
Quantity (units) ………..
1,000
Cost per unit …………….
$ 8
Total …………………………
$ 8,000
Total cost of goods
sold ……………………….
$140,000
Gross profit ……………….
$ 68,000
Value of ending
inventory:
Beginning inventory
(3,000 $8) ……………..
$ 24,000
+ Total production
(12,000 $11) ………….
$132,000
Total inventory
available for sale ………
$156,000
– Cost of good sold ……
$140,000
Ending inventory ………..
$ 16,000
Or
2,000 units $8 = $16,000
Chapter 04: Financial Forecasting
4-13
16. Gross profit and ending inventory (LO2) Sprint Shoes, Inc., had a beginning inventory
of 9,000 units on January 1, 2010. The costs associated with the inventory were:
Material ……………. $13.00 per unit
Labor ……………….. 8.00 per unit
Overhead ………….. 6.10 per unit
During 2010, the firm produced 42,500 units with the following costs:
Material ……………. $15.50 per unit
Labor ……………….. 7.80 per unit
Overhead ………….. 8.30 per unit
Sales for the year were 47,250 units at $39.60 each. Sprint Shoes uses LIFO accounting.
What was the gross profit? What was the value of ending inventory?
4-16. Solution:
Sprint Shoes, Inc.
Sales (47,250 @ $39.60)
$1,871,100
Cost of goods sold:
New inventory:
Quantity (units) ………..
42,500
Cost per unit …………….
$ 31.60
Total …………………………
$1,343,000
Old inventory:
Quantity (units) ………..
4,750
Cost per unit …………….
$ 27.10
Total …………………………
$ 128,725
Total cost of goods
sold ……………………….
$1,471,725
Gross profit ……………….
$ 399,375
Value of ending
inventory:
Beginning inventory
(9,000 $27.10) ……….
$ 243,900
Chapter 04: Financial Forecasting
+ Total production
(42,500 $31.60) ……..
$1,343,000
Total inventory
available for sale ………
$1,586,900
– Cost of good sold ……
$1,471,725
Ending inventory ………..
$ 115,175
Or
42,500 units $27.10 = $115,175
17. Schedule of cash receipts (LO2) Victoria’s Apparel has forecast credit sales for the fourth
quarter of the year as:
September (actual) ……… $50,000
Fourth Quarter
October …………………….. $40,000
November …………………. 35,000
December………………….. 60,000
Experience has shown that 20 percent of sales receipts are collected in the month of sale,
70 percent in the following month, and 10 percent are never collected.
Prepare a schedule of cash receipts for Victoria’s Apparel covering the fourth quarter
(October through December).
4-17. Solution:
Victoria’s Apparel
September
October
November
December
Credit sales
$50,000
$40,000
$35,000
$60,000
20% Collected
in month of
sales
8,000
7,000
12,000
70%
Collected in
month after
sales
35,000
28,000
24,500
Total cash
receipts
$43,000
$35,000
$36,500
Chapter 04: Financial Forecasting
4-15
18. Schedule of cash receipts (LO2) Simpson Glove Company has made the following sales
projections for the next six months. All sales are credit sales.
March ………………………. $36,000
April ………………………… 45,000
May …………………………. 27,000
June …………………………. 42,000
July ………………………….. 53,000
August ……………………… 57,000
Sales in January and February were $41,000 and $39,000 respectively. Experience has
shown that of total sales receipts 10 percent are uncollectible, 40 percent are collected in
the month of sale, 30 percent are collected in the following month, and 20 percent are
collected two months after sale.
Prepare a monthly cash receipts schedule for the firm for March through August.
Chapter 04: Financial Forecasting
4-18. Solution:
Simpson Glove Company
Cash Receipts Schedule
January
February
March
April
May
June
July
August
Sales
$41,000
$39,000
$36,000
$45,000
$27,000
$42,000
$53,000
$57,000
Collections
(40% of
current sales)
14,400
18,000
10,800
16,800
21,200
22,800
Collections
(30% of prior
month’s
sales)
11,700
10,800
13,500
8,100
12,600
15,900
Collections
(20% of sales
2 months
earlier)
8,200
7,800
7,200
9,000
5,400
8,400
Total cash
receipts
$34,300
$36,600
$31,500
$33,900
$39,200
$47,100
Chapter 04: Financial Forecasting
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19. Schedule of cash receipts (LO2) Watt’s Lighting Stores made the following sales
projection for the next six months. All sales are credit sales.
March ………………………. $30,000
April ………………………… 36,000
May …………………………. 25,000
June …………………………. 34,000
July ………………………….. 42,000
August ……………………… 44,000
Sales in January and February were $33,000 and $32,000, respectively.
Experience has shown that of total sales, 10 percent are uncollectible, 30 percent are
collected in the month of sale, 40 percent are collected in the following month, and 20
percent are collected two months after sale.
Prepare a monthly cash receipts schedule for the firm for March through August.
Of the sales expected to be made during the six months from March through August,
how much will still be uncollected at the end of August? How much of this is expected to
be collected later?
Chapter 04: Financial Forecasting
4-19. Solution:
Watt’s Lighting Stores
Cash Receipts Schedule
January
February
March
April
May
June
July
August
Sales
$33,000
$32,000
$30,000
$36,000
$25,000
$34,000
$42,000
$44,000
Collections
(30% of
current sales)
9,000
10,800
7,500
10,200
12,600
13,200
Collections
(40% of
prior month’s
sales)
12,800
12,000
14,400
10,000
13,600
16,800
Collections
(20% of sales
2 months
earlier)
6,600
6,400
6,000
7,200
5,000
6,800
Total cash
receipts
$28,400
$29,200
$27,900
$27,400
$31,200
$36,800
Still due (uncollected) in August:
Bad debts: ($30,000 + 36,000 + 25,000 + 34,000 + 42,000 + 44,000) × .1 = (211,000) × .1 = $21,100
Chapter 04: Financial Forecasting
4-19
20. Schedule of cash payments (LO2) Ultravision, Inc., anticipates sales of $240,000 from
January through April. Materials will represent 50 percent of sales and because of level
production, material purchases will be equal for each month during the four months of
January, February, March, and April.
Materials are paid for one month after the month purchased. Materials purchased in
December of last year were $20,000 (half of $40,000 in sales). Labor costs for each of the
four months are slightly different due to a provision in the labor contract in which bonuses
are paid in February and April. The labor figures are:
January …………………….. $10,000
February …………………… 13,000
March ………………………. 10,000
April ………………………… 15,000
Fixed overhead is $6,000 per month. Prepare a schedule of cash payments for January through
April.
Chapter 04: Financial Forecasting
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4-20. Solution:
Ultravision, Inc.
Cash Payment Schedule
Dec.
Jan.
Feb.
March
April
* Purchases
$20,000
$30,000
$30,000
$30,000
$30,000
** Payment to material purchases
20,000
30,000
30,000
30,000
Labor
10,000
13,000
10,000
15,000
Fixed overhead
6,000
6,000
6,000
6,000
Total Cash Payments
$36,000
$49,000
$46,000
$51,000
For January through April