Question

Hamby Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below: Hamby Corporation Balance Sheet June 30 Assets Cash $ 84,000 Accounts receivable 144,000 Inventory 63,750 Plant and equipment, net of depreciation 223,000 Total assets $ 514,750 Liabilities and Stockholders’ Equity Accounts payable $ 84,000 Common stock 349,000 Retained earnings 81,750 Total liabilities and stockholders’ equity $ 514,750 The company managers have made the following additional assumptions and estimates: Estimated sales for July, August, September, and October will be $340,000, $360,000, $350,000, and $370,000, respectively. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July. Each month’s ending inventory must equal 25% of the cost of next month’s

sales. The cost of goods sold is 75% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July. Monthly selling and administrative expenses are always $44,000. Each month $6,000 of this total amount is depreciation expense and the remaining $38,000 relates to expenses that are paid in the month they are incurred. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30. How much is the Company's expected cash disbursement for merchandise in the month of July?

Answer 1

	July	August	September	October
Sales	340,000	360,000	350,000	370,000
Cost of Goods sold = 75% of Sales	255,000	270,000	262,500	277,500
Add: ending Inventory = 25% of next month	67,500	65,625	69,375
Total Required	322,500	335,625	331,875
Less: Beginning Inventory	63,750	67,500	65,625
Required Purchases	258,750	268,125	266,250
Payments in July
40% of July Purchases	103,500
Accounts Payable from June	84,000
Cash disbursement for merchandise in July	187,500

Hence, the answer is $187,500