Question

10. Sherman has budgeted sales for the upcoming quarter as follows:

	April	May	June
Units	1,600	1,900	1,750

The desired ending finished goods inventory for each month is one-half of next month's budgeted sales. Three pounds of direct material are required for each unit produced. If direct material costs $5 per pound, and must be paid for in the month of purchase, the budgeted direct materials purchases (in dollars) for April are:

a.$40,500.

b.$17,500.

c.$26,250.

d. $38,250.

11.

Ross Corporation makes all sales on account. The June 30th balance sheet balance in its accounts receivable is $400,000, of which $240,000 pertain to sales that were made during June. Budgeted sales for July are $1,250,000. Ross collects 70% of sales in the month of sale; 20% in the following month; and the final 10% in the second month after the sale.

What are Ross's budgeted collections for July?

a. $915,000

b. $1,275,000

c. $1,195,000

d. $939,000

Answer 1

10.

Compute the opening inventory units for April, using the equation as shown below:

Opening inventory = April sales/ 2

  = 1,600 units/ 2

  = 800 units

Hence, the opening inventory is 800 units.

Compute the ending inventory units for April, using the equation as shown below:

Ending inventory = May sales/ 2

  = 1,900 units/ 2

  = 950

Hence, the ending inventory units are 950 units.

Compute the budgeted purchases of material for April, using the equation as shown below:

Budgeted purchases = (Units sold + Closing inventory – Opening inventory)*Material required*Purchase price of material

= (1,600 units + 950 units – 800 units)*3 pounds*$5

= $26,250

Hence, the budgeted purchases of material for April is $26,250.  

11.

Compute the cash collection in July for the sales made in May, using the equation as shown below:

Cash collection = June receivables – Receivables due to June sales

= $400,000 - $240,000

= $160,000

Hence, the cash collection in July for the sales made in May is $160,000.

Compute the cash collection in July for the sales made in June, using the equation as shown below:

Cash collection = Accounts receivables due to June sales*Percentage of collection/ Percentage of accounts receivables

  = $240,000*20%/ 30%

  = $160,000

Hence, the cash collection in July for the sales made in June is $160,000.  

Compute the total cash collection in July, using the equation as shown below:

Total cash collection = (July sales*Percentage of collection) + Cash collection for May sales + Cash collection for June sales

= ($1,250,000*70%) + $160,000 + $160,000

= $1,195,000

Hence, the total cash collection in July is $1,195,000.