Question

J1, Jueullterprises, a mèrchändising firm, had an inventory of 38,000 units, and it had accounts receivable totalling $85,000. Sales, in units, have been budgeted as follows for the next four months: April 60,000 May 75,000 June 90,000 July 81,000 Streuling's board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales. The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale; the balance is collected in the following month. Required: a) Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April, May, and June. Remember there is a difference between units and Sof the units - use the right figures in the right spots b) Prepare a schedule of expected cash collections for each of the months April, May, and June. Remember the existing A/R balance

Answer 1

a. Purchase budget :

	April	May	June
Budgeted sales units	60,000	75,000	90,000
(+) Desired ending inventory [ 40% of the following month's budgeted sales ]	30,000 [ 40% * 75,000 ]	36,000 [ 40% * 90,000 ]	32,400 [ 40% * 81,000 ]
(-) Opening inventory	( 38,000 )	( 30,000 )	( 36,000 )
Units to be purchased	52,000	81,000	86,400

2. Schedule of expected cash collection :

	April	May	June
Budgeted sales amount [ Budgeted sales units * selling price per unit	$120,000 [ 60,000 units * $2 ]	$150,000 [ 75,000 units * $2 ]	$180,000 [ 90,000 units * $2 ]
Expected cash collection :
1/3rd of current month	$40,000 [ $120,000 * 1/3 ]	$50,000 [ $150,000 * 1/3 ]	$60,000 [ $180,000 * 1/3 ]
2/3rd of previous month	$85,000 [ Accounts receivables as on 31 March ]	$80,000 [ $120,000 * 2/3 ]	$100,000 [ $150,000 * 2/3 ]
Total expected cash collection	$125,000	$130,000	$160,000