Question

Purchases and Cash Budgets

On July 1, MTC Wholesalers had a cash balance of $175,000 and accounts payable of $99,000. Actual

sales for May and June, and budgeted sales for July, August, September, and October are:

Month

Actual

Sales Month

Budgeted

Sales

May. . . . . . . . . . . . . . . . . . . . . . $150,000 July . . . . . . . . . . . . . . . . . . . . . . $ 90,000

June . . . . . . . . . . . . . . . . . . . . . 160,000 August . . . . . . . . . . . . . . . . . . . 80,000

September . . . . . . . . . . . . . . . . 100,000

October . . . . . . . . . . . . . . . . . . 120,000

All sales are on credit with 75 percent collected during the month of sale, 20 percent collected during

the next month, and 5 percent collected during the second month following the month of sale. Cost

of goods sold averages 70 percent of sales revenue. Ending inventory is one-half of the next month’s

predicted cost of sales. The other half of the merchandise is acquired during the month of sale. All pur-

chases are paid for in the month after purchase. Operating costs are estimated at $28,000 each month

and are paid during the month incurred.

Required

Prepare purchases and cash budgets for July, August, and September

Answer 1

EXPECTED CASH COLLECTIONS
			July	Aug	Sep	QUARTER
May Month Sales			7,500			7,500
June Month sales			32,000	8000		40,000
July month sales			67500	18000	4500	90,000
Aug Month sales				60,000	16,000	76,000
Sep montnh sale					75000	75,000
Total Cash Collections			107,000	86,000	95,500	288,500
RAW MATERIAL PURCHASE BUDGET
			July	Aug	Sep	QUARTER	Oct
Budgeted Sales			90,000	80,000	100,000	270,000	120,000
Cost of goods sold % of sales			70%	70%	70%	70%	70%
Budgeted Cost of Goods sold			63,000	56,000	70,000	189,000	84,000
Add: Desired Ending Inventory			28,000	35,000	42,000	42,000
Total needs			91,000	91,000	112,000	231,000
Less: Beginning Inventory			31,500	28,000	35,000	31,500
Budgeted Purchases in $			59,500	63,000	77,000	199,500
EXPECTED CASH PAYMENTS
			July	Aug	Sep	Quarter
Beginning Accounts payable			99,000			99,000
July month purchase				59500		59,500
Aug month purchase					63000	63,000
Total Cash disbursement			99,000	59,500	63,000	221,500
CASH BUDGET:
			July	Aug	Sep	Quarter
Cash Balance			175000	155000	153500	175000
Cash collections			107000	86000	95500	288500
Total cash available			282000	241000	249000	463500
Cash disbursement:
Cash payment for purchases			99000	59500	63000	221500
Operating expense			28000	28000	28000	84000
Total cash idsbursement			127000	87500	91000	305500
Ending cash balance			155000	153500	158000	158000