Question

Mast Corporation seeks your assistance in developing cash and other budget information for May, June, and...

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 $861,000, inventories of $130,800, and accounts payable of $36,982. 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: 70 percent within the discount period, 15 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, 56 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 $10.
  • 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 $ 162,000 10,800
April 196,500 13,100
May 163,500 10,900
June 171,000 11,400
July 165,000 11,000
August 14,000 11,200


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.

Homework Answers

Answer #1
Purchase Budget
May June July
Sales units 10900 11400 11000
Budgeted Ending inventory 13680 13200 13440
Total Units Required 24580 24600 24440
Beginning Inventory 13080 13680 13200
Budgeted Purchases 11500 10920 11240
Standard Price per unit $               10 $               10 $               10
Budgeted Purchases Cost $    115,000 $    109,200 $    112,400

a. Budgeted purchases in dollars for May = $115000

b. Budgeted purchases in dollars for June = $109200

c. Cash Collections during May = $163500 x 70% x 98% + 163500 * 15% + 196500 x 12% = $160266

d. Budgeted cash disbursements during June = $111752 + 21155 = $132907
For purchases = $109200 x 56% + 115000 x 44% = $111752
For Selling, general, and administrative expenses = (171000x15%-4000) x 56% + (163500x15%-4000) x 44% = $21155

e. Budgeted number of units of inventory to be purchased during July = 11240

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