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 $872,000, inventories of $185,760, and accounts payable of $44,745. 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 120 percent of the next month’s units of sales. The cost of each unit of inventory is $12. Selling, general, and administrative expenses, of which $3,000 is depreciation, equal 10 percent of the current month’s sales.

Actual and projected sales follow:

Dollars Units

March $ 200,600 11,800

April 222,700 13,100

May 219,300 12,900

June 193,800 11,400

July 187,000 11,000

August 14,400 11,200

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

a)	Units
Sales (May)	12900
Add: Ending Inventory = 120% x 11400 (June Sales)	13680
Less: Beginning Inventory = 120% x 12900 (May Sales)	-15480
Purchases for May (in units)	11100
Cost per unit	x $12
Purchases for May (in Dollars)= 11,100 x $12	$133,200.00
b)
Sales (June)	11400
Add: Ending Inventory = 120% x 11000 (July Sales)	13200
Less: Beginning Inventory = 120% x 11400 (june Sales)	-13680
Purchases for June (in units)	10920
Cost per unit	x $12
Purchases for June (in Dollars)= 11,100 x $12	$131,040.00
c)
May's Sales	$219,300.00
Collection
Collected in the month of sale = 65% x (1-2%) x $219,300	$139,694.10
Collected in the following month of sale = 20% x $222,700 (Apr.)	$44,540.00
Collected in the next following month of sale = 12%x $200,600(Mar.)	$24,072.00
Budgeted cash collections during May	$208,306.10
d)
Cash disbursements during June
60% of June Purchase (Part b)	$78,624.00
40% of May Purchase (part a)	$52,416.00
Depreciation	$3,000.00
Selling and administration Expenses (10% x May Sales)= (21930 - 3000) x 40%	$7,572.00
Selling and administration Expenses (10% x june Sales) = (19380 - 3000)*60%	$9,828.00
Cash disbursements during June	$151,440.00