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 $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.

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