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 $893,000, inventories of $149,875, and accounts payable of $35,183. 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, 57 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 125 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 10 percent of the current month's sales.

Actual and projected sales follow:

Dollars Units March $ 172,800 10,800 April 193,600 12,100 May 174,400 10,900 June 182,400 11,400 July 224,000 14,000 August 17,200 14,200

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) budgeted purchases in dollars for May = Unit sales of may +Ending inventory at may -Beginning inventory at may

         = 10900 + [11400* 125%] - [10900*125%]

         = 10900+ 14250-13625

      = 11525 units

purchase in $ : 11525* 11 =$ 126775

b) budgeted purchases in dollars for June = Unit sales of june +Ending inventory at june -Beginning inventory at june

         = 11400 + [14000* 125% ] -[11400*125%]

         = 11400 + 17500-14250

           = 14650 units

Purchase in $ : 14650 * 11 =$ 161150

c) budgeted cash collections during May = [may sales *% * (1-discount for payment made within 10 days)]+[may sales *% of collection at end of month ] + [april sales * % of collection of following month]

       =[174400*.65 *(1-.02)] +[174400 * .20 ]+ [193600*.12]

          = 111092.8+ 34880+ 23232

          = $ 169204.8   [rounded to 169205 ]

d) budgeted cash disbursements during June : [May purchase *% paid in following month ]+ [June purchase * % paid in current month]

     =[14650*11*.57 ]+ [11525*11*.43]

      = 91855.5+ 54513.25

         = $ 146368.75

**100-57 = 43%

e)budgeted number of units of inventory to be purchased during July = Unit sales of july +Ending inventory at july-Beginning inventory at july

            = 14000+ [14200*125%] -[14000 *125%]

         = 14000 + 17750-17500

           = 14250 units