Question

A merchandising firm by the name of Star Wars Enterprises, had an inventory of 42,000 units on March 31, and it had accounts receivable totaling $83,500. Sales, in units, have been budgeted as follows for the next four months:

April	55,000
May	65,000
June	81,000
July	79,000

To be enforced in April, Star Wars board of directors has established a policy that states that the inventory at the end of each month should contain 35% of the units required for the following month's budgeted sales. $2.5 is the selling price per unit. One-Quarter of sales are paid for by customers in the month of the sale; the balance is collected in the following month.

Required:

1)         Prepare a merchandise purchases budget showing how many units should be purchased for  

           each of the months April, May, and June.

2)          Prepare a schedule of expected cash collections for each of the months April, May, and June.

Answer 1

nswer to Requirement 1 Merchandise Purchases Budget April June Budgeted Unit Sale:s Add: Desired Ending Inventory 55,000 65,000 81,000 22,750 28,350 27,650 Total Needs 77,750 93,350 108,650 22,750 Less: Beginning Inventory 42,000 28,350 Budgeted Units to be purchased 35,750 70,600 80,300 Calculation: Desired Ending inventory, April-65,000 * 35%-22,750 Units Desired Ending inventory, May 81,000 * 3596 28,350 Units Desired Ending Inventory, June-79,000 * 3596: 27,650 Units nswer to Requirement 2 Cash Collection Budget April June Collection from Current Month Sales 34,375 40,625 50,625 Collection from Accounts Receivable 83,500 103,125 121,875 Expected Cash Collection 117,875 143,750 172,500

Calculation: Calculation of Sales: May June Budgeted Unit Sales Selling Price per Unit Budgeted Dollar Sales 81,000 55,000 65,000 2.50 2.50 2.50 137,500 162500 202,500