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 $11,000, accounts receivable of $878,000, inventories of $123,165, and accounts payable of $36,395. 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: 65 percent within the discount period, 20 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, 60 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 115 percent of the next month’s units of sales.
• The cost of each unit of inventory is $9.
• Selling, general, and administrative expenses, of which $5,000 is depreciation, equal 20 percent of the current month’s sales.
• Actual and projected sales follow:

	Dollars		Units
March	$	179,200	12,800
April		155,400	11,100
May		166,600	11,900
June		145,600	10,400
July		168,000	12,000
August		14,800	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.)

d. Compute the budgeted cash disbursements during June. (Do not round intermediate calculations.)

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

Answer 1

Purchase Budget
	May	June	July
Sales units	11900	10400	12000
Add : Desired Ending Inventory	11960	13800	14030
Total Material Required	23860	24200	26030
Less : Beginning Inventory	13685	11960	13800
Material to be purchased	10175	12240	12230
Cost per unit	$           9.00	$           9.00	$           9.00
Purchase Cost	$      91,575	$    110,160	$    110,070

a. Budgeted Purchases in May = $91575

b. Budgeted Purchases in June = $110160

c. Budgeted Cash Collections in May = $166600 x 65% x 98% + 166600 x 20% + 155400 x 12% = $158092

d. Budgeted Cash Disbursements = ($145600 x 20% - 5000 + 110160) x 60% + (166600 x 20% - 5000 + 91575) x 40% = $128526

e. Budgeted units to be purchased in July = 12230 units