Question

Abacus Company sells its product for $180 per unit. Its actual and projected sales follow.   ...

Abacus Company sells its product for $180 per unit. Its actual and projected sales follow.
   Units Dollars
  April (actual) 6,000       $1,080,000   
  May (actual) 2,000       360,000   
  June (budgeted) 7,000       1,260,000   
  July (budgeted) 6,500       1,170,000   
  August (budgeted) 3,800       684,000   

All sales are on credit. Recent experience shows that 22% of credit sales is collected in the month of the sale, 48% in the month after the sale, 28% in the second month after the sale, and 2% proves to be uncollectible. The product’s purchase price is $110 per unit. All purchases are payable within 12 days. Thus, 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 24% of the next month’s unit sales plus a safety stock of 195 units. The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,692,000 and are paid evenly throughout the year in cash. The company’s minimum cash balance at month-end is $90,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $90,000, the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 12% interest rate. On May 31, the loan balance is $45,500, and the company’s cash balance is $90,000.

1.

value:
10.00 points

Required information

Required:
1.

Prepare a table that shows the computation of cash collections of its credit sales (accounts receivable) in each of the months of June and July. (Omit the "$" & "%" signs in your response.)


Cash collections of credit sales (accounts receivable)
  From sales in Total % Collected June July
  April $    % $    
  May             
      $    
  June             
         
  July             
  
  Total collected $     $    
  

References

WorksheetLearning Objective: 23-C2 Describe a master budget and the process of preparing it.

Difficulty: 3 HardLearning Objective: 23-P2 Link both operating and capital expenditures budgets to budgeted financial statements.

Check my work

2.

value:
10.00 points

Required information

2.

Prepare a table that shows the computation of budgeted ending inventories (in units) for April, May, June, and July. (Omit the "%" sign in your response.)

Budgeted ending inventories (in units)
April May June July
  Next month’s budgeted sales                        
  Ratio of inventory to future sales % % % %
  
  Budgeted “base” ending inventory                        
  Plus safety stock                        
  
  Budgeted ending inventory                        
  

References

WorksheetLearning Objective: 23-C2 Describe a master budget and the process of preparing it.

Difficulty: 3 HardLearning Objective: 23-P2 Link both operating and capital expenditures budgets to budgeted financial statements.

Check my work

3.

value:
10.00 points

Required information

3.

Prepare the merchandise purchases budget for May, June, and July. Report calculations in units and then show the dollar amount of purchases for each month. (Amounts to be deducted should be indicated with a minus sign. Omit the "$" sign in your response.)

  

ABACUS COMPANY
Merchandise Purchases Budgets
For May, June, and July
May June July
  (Click to select)Budgeted beginning inventoryBeginning inventoryBudgeted purchasesBudgeted ending inventoryPayments on purchases         
  (Click to select)Payments on purchasesAdd: Budgeted salesDeduct: Budgeted salesBudgeted purchasesBudgeted beginning inventory         
    
  Required units of available merchandise         
  (Click to select)Deduct: Beginning inventoryBudgeted purchases (units)Budgeted ending inventoryAdd: Beginning inventoryBudgeted sales         
  
  (Click to select)Budgeted purchasesBudgeted ending inventoryBudgeted salesBudgeted beginning inventoryBeginning inventory         
    
  (Click to select)Budgeted salesBeginning inventoryBudgeted cost per unitPayments on purchasesBudgeted ending inventory $    $    $   
  Budgeted cost of merchandise purchases $    $    $   
  

References

WorksheetLearning Objective: 23-C2 Describe a master budget and the process of preparing it.

Difficulty: 3 HardLearning Objective: 23-P2 Link both operating and capital expenditures budgets to budgeted financial statements.

Check my work

4.

value:
10.00 points

Required information

4.

Prepare a table showing the computation of cash payments on product purchases for June and July. (Round your answers to the nearest dollar amount. Omit the "$" & "%" signs in your response.)

Cash payments on product purchases (for June and July)
  From purchases in Total % Paid June July
  May $    % $   
  June            
         $   
  July            
   
  Total Paid $    $   
  

References

WorksheetLearning Objective: 23-C2 Describe a master budget and the process of preparing it.

Difficulty: 3 HardLearning Objective: 23-P2 Link both operating and capital expenditures budgets to budgeted financial statements.

Check my work

5.

value:
10.00 points

Required information

5.

Prepare a cash budget for June and July, including any loan activity and interest expense. Compute the loan balance at the end of each month. (Leave no cells blank - be certain to enter "0" wherever required. Input all amounts as positive values except preliminary cash balance and any repayments to bank which should be indicated by a minus sign. Round intermediate calculations and final answers to the nearest dollar amount. Omit the "$" sign in your response.)

  

ABACUS COMPANY
Cash Budget
June and July
June July
  (Click to select)Selling and administrative expensesAdditional loan from bankPayments on purchasesBeginning cash balanceInterest expense $    $   
  (Click to select)Selling and administrative expensesAdditional loan from bankInterest expensePayments on purchasesCash receipts from customers      
  
  Total available cash      
  Cash disbursements
     (Click to select)Preliminary cash balanceRepayment of loan to bankPayments on purchasesCash receipts from customersAdditional loan from bank      
     (Click to select)Additional loan from bankCash receipts from customersPreliminary cash balanceSelling and administrative expensesRepayment of loan to bank      
     (Click to select)Additional loan from bankInterest expenseRepayment of loan to bankCash receipts from customersPreliminary cash balance      
  
     Total disbursements      
  
  (Click to select)Preliminary cash balancePayments on purchasesCash receipts from customersSelling and administrative expensesInterest expense      
  (Click to select)Additional loan from bankSelling and administrative expensesCash receipts from customersInterest expensePayments on purchases      
  (Click to select)Cash receipts from customersSelling and administrative expensesRepayment of loan to bankInterest expensePayments on purchases      
  
  (Click to select)Additional loan from bankPayments on purchasesEnding loan balancePreliminary cash balanceEnding cash balance $    $   
  
  (Click to select)Preliminary cash balanceEnding loan balancePayments on purchasesAdditional loan from bankEnding cash balance $    $   
  

Homework Answers

Answer #1

1.

Cash Collections of Credit Sales
From Sales in Total % Collected June July
April 1080000 28 302400
May 360000 48 172800
360000 28 100800
June 1260000 22 277200
1260000 48 604800
July 1170000 22 257400
Total Collected 752400 963000

2.

Budgeted Ending Inventories (in units)
April May June July
Next month's budgeted sales 2000 7000 6500 3800
Ratio of Inventory to Future Sales 24 24 24 24
Budgeted Base Ending Inventory 480 1680 1560 912
Plus : Safety Stock 195 195 195 195
Budgeted ending Inventory 675 1875 1755 1107

3.

Abacus Company
Merchandise Purchase Budgets
For May, June, July
May June July
Ending Inventory 1875 1755 1107
Add: Actual/Budgeted Sales 2000 7000 6500
Less: Beginning Inventory 675 1875 1755
Purchases 3200 6880 5852
Cost Per Unit 110 110 110
Budgeted Cost of Merchandise purchased 352000 756800 643720

4.

Cash Payments on Product Purchases (for June and July)
From Purchases in Total % Paid June July
May 352000 40 140800
June 756800 60 454080
756800 40 302720
July 643720 60 386232
Total Paid 594880 688952

5.

Abacus Company
Cash Budget
June and July
June July
Beginning Cash Balance 90000 90000
Cash Receipts from Customers 752400 963000
Total Cash available 842400 1053000
Cash Disbursements
Payments on Purchaes 594880 688952
Selling & Administrative Expenses 141000 141000
Interest Expense 455 294
Total Disbursements 736335 830246
Preliminary Cash Balance 106065 222754
Additional Loan from Bank
Repayment of Loan to Bank 16065 29435
Ending Loan Balance 29435 0
Ending Cash Balance 90000 193319
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