Question

[The following information applies to the questions displayed below.) Abacus Company sells its product for $125 per unit. Its actual and projected sales follow. Units Dollars April (actual) 8,000 $1,000,000 May (actual) 4,000 500,000 June (budgeted) 12,000 1,500,000 July (budgeted) 6,000 750,000 August (budgeted) 7,600 950,000 All sales are on credit. Recent experience shows that 20% of credit sales is collected in the month of the sale. 30% in the month after the sale, 48% in the second month after the sale, and 2% proves to be uncollectible. The product's purchase price is $100 per unit. All purchases are payable within 12 days. Thus, 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly Inventory of 25% of the next month's unit sales plus a safety stock of 100 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,200,000 and are paid evenly throughout the year in cash. The company's minimum cash balance at month-end is $60,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $60,000, the company repays as much of the loan as It can without going below the minimum. This type of loan carries an annual 9% Interest rate. On Ma loan balance is $32,000, and the company's cash balance is $60,000.

Answer 1

A В Е 1 Requirement 1 Cash Collections of credit sales(Accounts receivable) June 2 %collected July 4,80,000 $ Total 3 From sales in 4 April 5 May 48% $ 30% $ 10,00,000 $ 5,00,000 1,50,000 $ 48% 2,40,000 6 20% $ 7 June 15,00,000 3,00,000 30% 4,50,000 1,50,000 S 9,30,000 S 8,40,000 9 July 10 Total Collected 7,50,000 20% 11 Requirement 2 Budgeted ending inventories April 12. July 6000 May June 13 7600 14 Next months budgeted sales 15 Ratio of inventory to future sales 16 Budgeted"base ending invenotry 4000 12000 25% 25% 25% 25% 3000 1000 1500 1900 100 100 17 Plus safety stock 100 100 18 Budgeted ending inventory 1100 3100 1600 2000 LO

В C Е 1 Requirement 1 Cash Collections of credit sales(Accounts receivable) % collected 0.48 2 June July Total 3 From sales in 4 April 5 May 1000000 500000 = +B5 *C5 0.3 = +B5*C6 0.48 6 =+B7*C7 1500000 0.2 7 June = +B7*C8 0.3 0.2 750000 9 July 10 Total Collected -SUM(D4 :D9 )SUM(E4:E9) 11 Requirement 2 Budgeted ending inventories May 12000 0.25 - +C14*C15 12. April 4000 0.25 = +B14*B15 July 7600 0.25 +E14*E15 June 13 6000 0.25 +D14 *D15 14 Next months budgeted sales 15 Ratio of inventory to future sales 16 Budgeted"base: ending invenotry 100 100 17 Plus safety stock 18 Budgeted ending inventory 100 100 =+B16+B17 =+C16+C17 -+D16+D17 - +E16+E17 LO

A В C 20 Requirement 3 ABACUS COMPANY 21 Merchandise Purchase Budgets For May,June and july May 22 23 July June 24 25 Sales unit 4000 12000 6000 26 ADD: Closing stock 1600 3100 2000 27 LESS: Units available 1600 1100 3100 28 Budgeted purchase units 29 Cost of purchase 30 Budgeted cost of Merchandise Purchase 6,00,000 $ 10,50,000 S 6,40,000 6000 10500 100 $ 6400 100 $ 100

A. 20 Requirement 3 ABACUS COMPANY 21 Merchandise Purchase Budgets 22 For May June and july May 4000 23 July 6000 June 24 12000 25 Sales unit 1600 3100 2000 1600 3100 26 ADD: Closing stock 27 LESS: Units available 28 Budgeted purchase units 29 Cost of purchase 30 Budgeted cost of Merchandise Purchase 1100 - +B25+B26-B27 =+C25+C26-C27 +D25+D26-D27 100 100 100 =+D28*D29 =+B28*B29 - +C28*C29 31