Question

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	$	$

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