Question & Answer: Mast Corporation seeks your assistance in developing cash and other budget information for May, June, and July. At April 30, the company…..

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 $859,000, inventories of $149,875, and accounts payable of $38,600. The budget is to be based on the following assumptions.

Each month’s sales are billed on the last day of the month.

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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: 65 percent within the discount period, 20 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, 60 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 125 percent of the next month’s units of sales.

The cost of each unit of inventory is $11.

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 $ 172,800 10,800
April 225,600 14,100
May 174,400 10,900
June 166,400 10,400
July 176,000 11,000
August 14,200 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.

Expert Answer

 

a. The budgeted purchases for may is $ 113,025 ( 10275 units * $11)

b. The budgeted purchases for june is $$122650 ( 11150 units * $11)

c. Cash collections during may is $ 209,563 computed as under

[(225,600*65%*98%)+(225,600*20%)+(172800*12%)]

d. Cash disbursements during june = (disbursements for purchase of inventory) + (selling & admin expenses excluding depreciation)

=[(122,650*60%)+(113,025*40%)]+[24,960-4000]

= $ 139,760

e. The budgeted number of units of inventory to be purchased during july = (Required closing inventory of July) + ( Sales for July) – ( Opening inventory of June)

= 14,000 + 11,000 – 13,750

=11,250 units.

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