Question

Mast Corporation seeks your assistance in developing cash and other budget information for May, June, and July. At April 30, the company had cash of $10,000, accounts receivable of $880,000, inventories of $154,800, and accounts payable of $40,840. The budget is to be based on the following assumptions.

Each month’s sales are billed on the last day of the month.

Customers are allowed a 2 percent discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts).

The billings are collected as follows: 60 percent within the discount period, 25 percent by the end of the month, and 12 percent by the end of the following month. Three percent is uncollectible.

Purchase data are as follows.

Of all purchases of merchandise and selling, general, and administrative expenses, 64 percent is paid in the month purchased and the remainder in the following month.

The number of units in each month’s ending inventory equals 120 percent of the next month’s units of sales. The cost of each unit of inventory is $10.

Selling, general, and administrative expenses, of which $3,000 is depreciation, equal 20 percent of the current month’s sales.

Actual and projected sales follow:

Dollars Units

March $ 207,000 13,800

April 151,500 10,100

May 193,500 12,900

June 186,000 12,400

July 180,000 12,000

August 15,000 12,200

Required:

a. Compute the budgeted purchases in dollars for May.

b. Compute the budgeted purchases in dollars for June.

c. Compute the budgeted cash collections during May. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

d. Compute the budgeted cash disbursements during June. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)

e. Compute the budgeted number of units of inventory to be purchased during July.

Answer 1

a) Suppose the purchase for May is X

Ending inventory 120% of next month's sales.

Beginning inventory = 12,900*120%

=15,480

Ending inventory = 120%*June's sales

12,400*120%

=14,880

Beginning+purchase-sales= ending inventory

15,480+X-12,900=14,880

=12,300

Purchase is 12,300 units*$10

=$123,000

b.Budgeted purchase for june

Suppose the purchase for June is X

Ending inventory 120% of next month's sales.

Beginning inventory = 12400*120%

=14,880

Ending inventory = 120%*July's sales

12,000*120%units

=14,400

Beginning+purchase-sales= ending inventory

14,880+X-12,400=14,400

=11,920 units

Purchase is 11,920 units*$10

=$119,200

c.budgeted cash collections-May

Billed at the end of month received next month

60% collected in discounted period with 2% discount (April sales)

25% by end of month (april sales)

12% in next month (March sales)

	May
cash collection from April sales(discount period)	$89,082($151,500*60%*98%)
cash collection from April sales(without discount)	$37,875($151,500*25%)
Cash collected from March sales	$24,840($207,000*12%)
Totalcash collected in May	$151,797

d)cash disbursement for June

	June
Payment for May merchandise purchase (100-64)36%	$44,280($123,000*36%)
Payment for June merchandise Purchase (64%)	$76,288($119,200*64%)
Payment for selling and administrative expense of May 36%	$12,852($193,500*20%-3000)*36%	depreciation is non cash expense. it does not result into an actual cash outflow.
Payment for selling and administrative of June 64%	$21,888[($186,000*20%)-3000]*64%
Total cash disbusrement	$155,308

e) Purchase in July

Suppose the purchase forJuly is X

Ending inventory 120% of next month's sales.

Beginning inventory = 12000*120%

=14,400

Ending inventory = 120%*August's sales

12,200*120%

=14,640

Beginning+purchase-sales= ending inventory

14,400+X-12,000=14,640

X=12,240

=12,240 units budgeted purchase in July