Question

Our company sells noserings.

Please prepare a master budget for the three-month period ending June 30. Include the following detailed budgets (by month and in total):

Sales budget

Schedule of expected cash collections from sales

Purchases budget (in units and in dollars)

Expected cash disbursements for merchandise purchases

Sales price of product = $10/unit

Actual Sales are as follows:

January $20,000

February $26,000

March $40,000

Budgeted sales:

September $25,000

August $28,000

July $30,000

June $50,000

May $100,000

April $65,000

We maintain enough inventory on hand to cover 40% of the next month's sales.

We pay suppliers $4/unit. We pay our supplier 50% of what we purchase in the month of the purchase and 50% in the following month.

With regard to sales to customers (all sales are on credit), cash from sales is collected as follows:

20% in the month of the sale

70% in the month following the sale

10% in the second month following the sale.

Costs:

Sales commissions is 4%.

Fixed costs: 1) Advertising $14,000, 2) Rent $3,000, 3) Salaries $106,000, 4) Utilities $200,000, 5) Rent $18,000, 6) Insurance $7,000.

Answer 1

The amount of 10,000 paid in April for March is derived as below:

For March Sales in units = 40,000/10 = 4,000

Closing inventory = Budgeted Sales for April x 40% = 6,500 x 40% = 2,600

Beginning inventory = Closing inventory for February = 40% of March Sales = 40% of 4,000 = 1,600

Therefore, purchases in units = 4,000 + 2,600 - 1,600 = 5,000 units

In dollars = 5,000 units x $4 = $20,000

50% of that is $10,000

Note: The Fixed Costs have been taken for the period and not month wise.