Question

Purchases and Cash Budgets
On July 1, MTC Wholesalers had a cash balance of $262,500 and accounts payable of $148,500. Actual sales for May and June, and budgeted sales for July, August, September, and October are:

Month	Actual Sales	Month	Budgeted Sales
May	$225,000	July	$ 135,000
June	240,000	August	120,000
		September	150,000
		October	180,000

All sales are on credit with 75 percent collected during the month of sale, 20 percent collected during the next month, and 5 percent collected during the second month following the month of sale. Cost of goods sold averages 70 percent of sales revenue. Ending inventory is one-half of the next month's predicted cost of sales. The other half of the merchandise is acquired during the month of sale. All purchases are paid for in the month after purchase. Operating costs are estimated at $42,000 each month and are paid during the month incurred.

Required
Prepare purchases and cash budgets for July, August, and September.

Do not use a negative sign with your answers.

MTC Wholesalers
Purchases Budget
For the Months of July, August, and September
		July	August	September
Inventory required, current sales
Desired ending inventory
Total inventory needs
Less beginning inventory
Purchases

Do not use a negative sign with your answers.

MTC Wholesalers
Cash Budget
For the Months of July, August, and September
		July	August	September
Cash balance, beginning
Cash receipts
Current month's sales
Previous month's sales
Sales two months prior
Total receipts
Cash available
Cash disbursements:
Purchases
Operating costs
Total disbursements
Cash balance, ending

Answer 1

MTC Wholesales
Purchases Budget
For the months of July, August and September
	July	August	September
Inventory required current sales	94,500	84,000	1,05,000
Add: Desired ending inventory	42,000	52,500	63,000
Total inventory needs	1,36,500	1,36,500	1,68,000
Less: Beginning Inventory	47,250	42,000	52,500
Purchases	89,250	94,500	1,15,500
Workings:
	July	August	September	October
Inventory required current sales	$135000 X 70%	$1,20,000 X 70%	$150,000 X 70%	$180,000 X 70%
	94,500	84,000	1,05,000	1,26,000
Desired ending inventory	$84,000 X 50%	$1,05,000 X 50%	$1,26,000 X 50%
	42,000	52,500	63,000
Beginning Inventory	$94500 X 50%	Ending inventory of previous month
MTC Wholesales
Cash Budget
For the months of July, August and September
	July	August	September
Cash balance, beginning	$       2,62,500	$         2,32,500	$         2,30,250
cash receipts
Current months sale	$       1,01,250	$             90,000	$         1,12,500
Previous month sales	$           48,000	$             27,000	$             24,000
sales two month prior	$           11,250	$             12,000	$               6,750
Total receipts	$       1,60,500	$         1,29,000	$         1,43,250
Cash available	$       4,23,000	$         3,61,500	$         3,73,500
Cash disbursements:
Purchases	$       1,48,500	$             89,250	$             94,500
Operating costs	$           42,000	$             42,000	$             42,000
Total disbursements	$       1,90,500	$         1,31,250	$         1,36,500
Cash balance, ending	$       2,32,500	$         2,30,250	$         2,37,000
Workings:
May Sales	=	5% in July
June Sales	=	20% in July and 5% in August
July Sales	=	75% in July, 20% in August and 5% in September
August Sales	=	75% in August and 20% in September
September Sales	=	75% in September