The marketing department of Jessi Corporation has submitted the following sales forecast for the upcoming fiscal year (all sales are on account):
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Budgeted unit sales
11,000
12,000
14,000
13,000
The selling price of the company’s product is $18.00 per unit. Management expects to collect 65% of sales in the quarter in which the sales are made, 30% in the following quarter, and 5% of sales are expected to be uncollectible. The beginning balance of accounts receivable, all of which is expected to be collected in the first quarter, is $70,200.
Required:
Calculate the estimated sales for each quarter of the fiscal year and for the year as a whole.
Calculate the expected cash collections for each quarter of the fiscal year and for the year as a whole.
2) Prepare a Flexible Budget
Puget Sound Divers is a company that provides diving services such as underwater ship repairs to clients in the Puget Sound area. The company’s static budget for May appears below:
Puget Sound Divers
Static Budget
For the Month Ended May 31
Budgeted diving-hours (q)
100
Revenue ($365.00q)
$36,500
Expenses:
Wages and salaries ($8,000 + $125.00q)
20,500
Supplies ($3.00q)
300
Equipment rental ($1,800 + $32.00q)
5,000
Insurance ($3,400)
3,400
Miscellaneous ($630 + $1.80q)
810
Total expense
30,010
Net operating income
$ 6,490
During May, the company’s actual activity was 105 diving-hours.
Required:
Prepare a flexible budget for May.
3) Prepare a Flexible Budget Performance Report
Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:
Vulcan Flyovers
Operating Data
For the Month Ended July 31
Actual
Results
Flexible
Budget
Static
Budget
Flights (q)
48
48
50
Revenue ($320.00q)
$13,650
$15,360
$16,000
Expenses:
Wages and salaries ($4,000 + $82.00q)
8,430
7,936
8,100
Fuel ($23.00q)
1,260
1,104
1,150
Airport fees ($650 + $38.00q)
2,350
2,474
2,550
Aircraft depreciation ($7.00q)
336
336
350
Office expenses ($190 + $2.00q)
460
286
290
Total expense
12,836
12,136
12,440
Net operating income
$ 814
$ 3,224
$ 3,560
The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount.
Required:
Prepare a flexible budget performance report for July that includes flexible-budget variances and sales-volume variances.
Which of the variances should be of concern to management? Explain.