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 $860,000, inventories of $143,880, and accounts payable of $38,883. 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: 75 percent within the discount period, 10 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, 56 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 $11.
• Selling, general, and administrative expenses, of which $4,000 is depreciation, equal 15 percent of the current month’s sales.
• Actual and projected sales follow:

	Dollars		Units
March	$	204,800	12,800
April		161,600	10,100
May		174,400	10,900
June		214,400	13,400
July		208,000	13,000
August		16,200	13,200

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

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Mast Corporation
Purchases Budget	March	April	May	June	July	August	Note
Sales units	12,800.00	10,100.00	10,900.00	13,400.00	13,000.00	13,200.00	A
Add: Closing		12,120.00	13,080.00	16,080.00	15,600.00		B= 120% of A of next month.
Less: Opening		15,360.00	12,120.00	13,080.00	16,080.00
		6,860.00	11,860.00	16,400.00	12,520.00		D=A+B-C
Cost per unit		11.00	11.00	11.00	11.00		E
Purchases Budget $		75,460.00	130,460.00	180,400.00	137,720.00		F=D*E

Answer a

Budgeted purchases in dollars for May is $ 130,460

Answer b

Budgeted purchases in dollars for June is $ 180,400

Answer e

Budgeted number of units of inventory to be purchased in July is 12,520 units.

Collection budget for May	Amount $
12% of sales of March (i.e. 204,800*12%)	24,576.00
75% of sales of April less 2% discount (i.e. 161,600*75%*98%)	118,776
10% of sales of April (i.e. 161,600*10%)	16,160.00
Collection budget for May	159,512.00

Answer c

The budgeted cash collections during May is $ 159,512.00

Selling and Administrative expense Budget	May	June	Note
Sales value	174,400.00	214,400.00	G
Selling and Administrative expense @ 15%	26,160.00	32,160.00	H=G*15%
Less: Depreciation expense (non cash)	4,000.00	4,000.00
Selling and Administrative expense payable for the months	22,160.00	28,160.00	I
Schedule of Cash Disbursement	June	Note
56% of purchases of June	101,024.00
56% of Selling and Administrative expense payable for June	15,769.6	See I
44% of purchases of May	79,376
44% of Selling and Administrative expense payable for May	12,390.4	See I
Total Cash Disbursements	208,560

Answer d

The budgeted cash Disbursement during June is $ 208,560