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 $130,800, and accounts payable of $38,087. 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: 60 percent within the discount period, 25 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, 63 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 $10.
• Selling, general, and administrative expenses, of which $4,000 is depreciation, equal 20 percent of the current month’s sales.
• Actual and projected sales follow:

	Dollars		Units
March	$	177,000	11,800
April		211,500	14,100
May		163,500	10,900
June		186,000	12,400
July		165,000	11,000
August		14,000	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. Round your final answer to nearest whole dollar.)
d. Compute the budgeted cash disbursements during June. (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)
e. Compute the budgeted number of units of inventory to be purchased during July.

Answer 1

A	Budgeted Purchases	May
		In Units
	For May Sales	10,900
	Add: Desired Closing Inventory (120% of June Sales)	14,880	14260
	Total Requirement	25,780
	Less: Opening Inventory(120% of May Sales)	13,080
	Net to be Purchased	12,700
	Rate PU	10
	Net to be Purchased in Value	1,27,000
B	Budgeted Purchases	June
		In Units
	For June Sales	12,400
	Add: Desired Closing Inventory (120% of Jul Sales)	13,200
	Total Requirement	25,600
	Less: Opening Inventory(120% of Jun Sales)	14,880
	Net to be Purchased	10,720
	Rate PU	10
	Net to be Purchased in Value	1,07,200
C	Budgeted Cash Collections	May	Formula
	Collections for March Sales	21,240	177000*12%
	Collections for April Sales	1,77,237	(211,500*60%*98%)+(211500*25%)
	Total Collections	1,98,477
D	Budgeted Cash Disbursements	June
	For May Purchases	46,990	(May Purchases=127,000*(100%-63%)
	For June Purchases	67,536	(June Purchases=(107,200*63%)
	S&A Expense for May	10,619	((163,500*20%)-4000)*(100%-63%)
	S&A Expense for June	20,916	((186,000*20%)-4000)*(63%)
	Total Collections	1,46,061
E	Budgeted Purchases	July
		In Units
	For Jul Sales	11,000
	Add: Desired Closing Inventory (120% of Aug Sales)	13,440
	Total Requirement	24,440
	Less: Opening Inventory(115% of Jul Sales)	13,200
	Net to be Purchased	11,240