22. Level production and related financing effects (LO3) Esquire Products Inc. expects the
following monthly sales:
January…..……... $28,000 May….......... $8,000 September......... $29,000
February……...... 19,000 June….......... 6,000 October………….. 34,000
March…..…….…. 12,000 July……..…… 22,000 November………. 42,000
April….…….….… 14,000 August…...... 26,000 December.......... 24,000
Total sales = $264,000
Cash sales are 40 percent in a given month, with the remainder going into accounts
receivable. All receivables are collected in the month following the sale. Esquire sells all of
its goods for $2 each and produces them for $1 each. Esquire uses level production, and
average monthly production is equal to annual production divided by 12.
a. Generate a monthly production and inventory schedule in units. Beginning inventory in
January is 12,000 units. (Note: To do part a, you should work in terms of units of
production and units of sales.)
b. Determine a cash receipts schedule for January through December. Assume that dollar
sales in the prior December were $20,000. Work part b using dollars.
c. Determine a cash payments schedule for January through December. The production
costs ($1 per unit produced) are paid for in the month in which they occur. Other cash
payments (besides those for production costs) are $7,400 per month.
d. Construct a cash budget for January through December using the cash receipts schedule
from part b and the cash payments schedule from part c. The beginning cash balance is
$3,000, which is also the minimum desired.
e. Determine total current assets for each month. Include cash, accounts receivable, and
inventory. Accounts receivable equal sales minus 40 percent of sales for a given month.
Inventory is equal to ending inventory (part a) times the cost of $1 per unit.
6-22. Solution:
Esquire Products Inc.
a. Production and inventory schedule in units
Beginnin
Ending
2 Monthly dollar sales/$2 = number of units
6-22. (Continued)
b.
Esquire Products Inc.
Cash Receipts Schedule (take dollar values from problem statement)
Jan. Feb. Mar. Apr. May June
0
6-22. (Continued)
c.
Esquire Products Inc.
Cash Payments Schedule
Constant Production
Jan. Feb. Mar. Apr. May June
July Aug. Sept. Oct. Nov. Dec.
6-22. (Continued)
d.
Esquire Products Inc.
Cash Budget
Jan. Feb. Mar. Apr. May June
Ending cash balance $7,800 $13,800 $11,600 $6,000 $3,000 $3,000
Ending cash balance $3,000 $3,000 $3,000 $8,600 $27,400 $43,800
6-22. (Continued)
e.
Esquire Products Inc.
Assets
Cash
Accounts
Receivable Inventory
Total
Current
Jan. $7,800 $16,800 $9,000 $33,600
Feb. 13,800 11,400 10,500 35,700
Mar. 11,600 7,200 15,500 34,300
The instructor may wish to point out how current assets are at
relatively high levels and illiquid during June through