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 $876,000, inventories of $106,920, and accounts payable of $30,536. 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: 65 percent within the discount period, 20 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, 57 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 120 percent of the next month’s units of sales.
• The cost of each unit of inventory is $9.
• 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	$	165,200	11,800
April		183,400	13,100
May		138,600	9,900
June		173,600	12,400
July		182,000	13,000
August		15,800	13,200

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. (Do not round intermediate calculations.)

d. Compute the budgeted cash disbursements during June. (Do not round intermediate calculations.)

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

Answer 1

a and b.

	May	Jun
Budgeted Units Sale	9900	12400
Selling price per unit	14	14
Total Sales	138600	173600

Merchandise Purchase Budget
	May	Jun
Requirement for the month	9,900	12,400
Add: Desired Ending Inventory	14,880	15,600
Total Needs	24,780	28,000
Less: Beginning Inventory	11,880	14,880
Total Purchase in units	12,900	13,120
Cost per units	9	9
Total Purchase ($)	116,100	118,080

c)

Cash Collection Budget
	May	Jun
Apr Sales (12%)	22,008	-
May Sales (65% less discount)	88,288
May Sales (20% and 12%)	27,720	16,632
June Sales (65% less discount)		110,583
Jun Sales (20% and 12%)		34,720
Total Collection	138,016	161,935

d)

Cash Disbursement Budget - For Merchandise
	Jun
May Purchase (57% * 116100)	49,923
Jun Purchase (43% * 118080)	67,306
Total Payment	117,229

e)

Merchandise Purchase Budget
	May	Jun	Jul
Requirement for the month	9,900	12,400	13,000
Add: Desired Ending Inventory	14,880	15,600	15,840
Total Needs	24,780	28,000	28,840
Less: Beginning Inventory	11,880	14,880	15,600
Total Purchase in units	12,900	13,120	13,240
Cost per units	9	9	9
Total Purchase ($)	116,100	118,080	119,160