Chapter 6, Problem 21P

Bombs Away Video Games Corporation has forecasted the following monthly sales:

Bombs Away Video Games sells the popular Strafe and Capture video game. It sells for $\text{\$5}$ per unit and costs $\text{\$2}$ per unit to produce. A level production policy is followed. Each month’s production is equal to annual sales (in units) divided by 12.

Of each month’s sales, 30 percent are for cash and 70 percent are on account. All accounts receivable are collected in the month after the sale is made.

a. Construct a monthly production and inventory schedule in units. Beginning inventory in January is 25,000 units. (Note: To do part a, you should work in terms of units of production and units of sales.)

b. Prepare a monthly schedule of cash receipts. Sales in the December before the planning year are $\text{\$100,000}$ . Work part b using dollars.

c. Determine a cash payments schedule for January through December. The production costs of $\text{\$2}$ per unit are paid for in the month in which they occur. Other cash payments, besides those for production costs, are $\text{\$45,000}$ per month.

d. Prepare a monthly 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 $\text{\$5,000}$ , which is also the minimum desired.