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 $894,000, inventories of $99,000, and accounts payable of $27,783. 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: 70 percent within the discount period, 15 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, 56 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 $8.

Selling, general, and administrative expenses, of which $4,000 is depreciation, equal 15 percent of the current month’s sales.

Actual and projected sales follow:  

Dollars Units

March 166,400 12,800

April 183,300 14,100  

May 128,700 9,900

June 148,200 11,400

July 156,000 12,000

August 14,600 12,200  

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.

d. Compute the budgeted cash disbursements during June.

e. Compute the budgeted number of units of inventory to be purchased during July.

Answer 1

	March	April	May	June	July	August
Budgeted sales in units	12,800	14,100	9,900	11,400	12,000	12,200
Add: Desired Ending Inventory (14,100*125/100); (9,900*125/100); (11,400*125/100); (12,000*125/100); (12,200*125/100)	17,625	12,375	14,250	15,000	15,250
Total Units Needed	30,425	26,475	24,150	26,400	27,250
Less: Beginning Inventory (last month's ending inventory will be the current month's beginning inventory)		17,625	12,375	14,250	15,000
Total Units Required to Purchase (a)		8,850	11,775	12,150	12,250
Cost of each unit of inventory (b)		$8	$8	$8	$8
Total Cost of Budgeted Purchases (a*b)		$70,800	$94,200	$97,200	$98,000
a) Therefore, the budgeted purchases in dollars for May is $94,200.
b) Therefore, the budgeted purchases in dollars for June is $97,200.
c)	March	April	May	June	July	August
Budgeted Total Sales	$166,400	$183,300	$128,700	$148,200	$156,000	$14,600
Cash collections from:
March Sales ($166,400*12/100)			$19,968
April Sales ($183,300*15/100)			$27,495
May Sales ($128,700*70/100)			$90,090
Total Cash Collections in May			$137,553
Therefore, total cash collections in May is $137,553.
d)	June
Cash payments to purchases:
May ($94,200*44/100)	$43,332
June ($97,200*56/100)	$54,432
Selling, general and administrative expenses ($156,000*15/100 = $23,400 - $4,000)	$19,400
Total Budgeted Cash Disbursements	$117,164
e) Budgeted number of units of inventory to be purchased in July 12,250.