Concept explainers
Budgeted Purchases and Cash Flows
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 $874,000, inventories of $618,800, and accounts payable of $266,110. 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, 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 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:
Required
Compute the following:
- a. Budgeted purchases in dollars for May.
- b. Budgeted purchases in dollars for June.
- c. Budgeted cash collections during May.
- d. Budgeted cash disbursements during June.
- e. The budgeted number of units of inventory to be purchased during July.
a.
Calculate the Budgeted purchases in dollars for May.
Answer to Problem 58P
The budgeted purchase for May is $113,000.
Explanation of Solution
Budgeted purchase:
The budgeted purchase is the total amount of goods purchased in the budgeted to attain the targeted or estimated sales.
Calculate the budgeted purchase for May ($):
Thus, the budgeted purchase for May is $113,000.
Working note 1:
Calculate the closing stock:
Working note 2:
Calculate the opening stock:
Working note 3:
Calculate the budgeted purchase for May (units):
b.
Calculate the Budgeted purchases in dollars for June.
Answer to Problem 58P
The budgeted purchase for June is $121,200.
Explanation of Solution
Budgeted purchase:
The budgeted purchase is the total amount of goods purchased in the budgeted to attain the targeted or estimated sales.
Calculate the budgeted purchase for June ($):
Thus, the budgeted purchase for May is $121,200.
Working note 4:
Calculate the closing stock:
Working note 5:
Calculate the opening stock:
Working note 6:
Calculate the budgeted purchase for May (units):
c.
Calculate the Budgeted cash collection during May.
Answer to Problem 58P
The budgeted cash collection during May is $691,896.
Explanation of Solution
Budgeted cash collection:
Budgeted cash collection is the amount of total cash inflow in the budgeted period. Only the cash revenues and incomes are considered in the calculation.
Calculate the budgeted cash collection:
Cash collection will be made for April (70% and 15%) and May (12%) because sales of each month are billed on the last day of the month.
The billings have been collected as follows: 70 percent within the discount period (April), 15 percent by the end of the month (April), and 12 percent by the end of the following month (May). Three percent is uncollectible.
Customers are allowed a discount of 2% for making the payment within 10 after the billing date.
Particulars | Sales |
70% (a) | 15% | 12% | 2% discount | Total cash collection |
April | $726,000 | $508,200 | - | - | $10,164 | $498,036 |
April | $726,000 | - | $108,900 | - | - | $108,900 |
May | $708,000 | - | - | $84,960 | - | $84,960 |
Total cash collection | $691,896 |
Table: (1)
Thus, the total cash collection for May is $691,896.
d.
Calculate the Budgeted cash disbursement during June.
Answer to Problem 58P
The budgeted cash disbursement during June is $218,320.
Explanation of Solution
Budgeted cash disbursement:
Budgeted cash disbursement is the amount of total cash outflow in the budgeted period. Only the cash expenses are considered in the calculation.
Calculate the budgeted cash disbursement for June:
Calculate the selling general and administrative expenses:
May:
June:
Calculate the purchase payment:
May:
June:
Thus, the total cash disbursement for June is $218,320
e.
Calculate the Budgeted number of units of inventory to be purchased during July.
Answer to Problem 58P
The budgeted purchase for July is 12,240.
Explanation of Solution
Budgeted purchase:
The budgeted purchase is the total amount of goods purchased in the budgeted to attain the targeted or estimated sales
Calculate the budgeted purchase for July (units):
Thus, the budgeted purchase for July is 12,240.
Working note 7:
Calculate the closing stock:
Working note 8:
Calculate the opening stock:
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Chapter 13 Solutions
FUNDAMENTAL'S OF COST ACCOUNTING LL
- Cash budget The controller of Bridgeport Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: The company expects to sell about 10% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent 50,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in January, and the annual property taxes are paid in December. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of September 1 include cash of 40,000, marketable securities of 75,000, and accounts receivable of 300,000 (60,000 from July sales and 240,000 from August sales). Sales on account for July and August were 200,000 and 240,000, respectively. Current liabilities as of September 1 include 40,000 of accounts payable incurred in August for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of 55,000 will be made in October. Bridgeports regular quarterly dividend of 25,000 is expected to be declared in October and paid in November. Management desires to maintain a minimum cash balance of 50,000. Instructions Prepare a monthly cash budget and supporting schedules for September, October, and November. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?arrow_forwardCash budget The controller of Mercury Shoes Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information: The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month after sale). Depreciation, insurance, and property tax expense represent 12,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in February, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 80% are expected to be paid in the month in which they are incurred and the balance in the following month. Current assets as of June 1 include cash of 42,000, marketable securities of 25,000, and accounts receivable of 198,000 (150,000 from May sales and 48,000 from April sales). Sales on account in April and May were 120,000 and 150,000, respectively. Current liabilities as of June 1 include 13,000 of accounts payable incurred in May for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of 24,000 will be made in July. Mercury Shoes regular quarterly dividend of 15,000 is expected to be declared in July and paid in August. Management desires to maintain a minimum cash balance of 40,000. Instructions Prepare a monthly cash budget and supporting schedules for June, July, and August. On the basis of the cash budget prepared in part (1), what recommendation should be made to the controller?arrow_forwardBudgeted income statement and supporting budgets The budget director of Birding Homes Feeders Inc., with the assistance of the controller, treasurer, production manager, and sales manager, has gathered the following data for use in developing the budgeted income statement for January: Estimated sales for January: Estimated inventories at January 1: Desired inventories at January 31: Direct materials used in production: Anticipated cost of purchases and beginning and ending inventory of direct materials: Direct labor requirements: Estimated factory overhead costs for January: Estimated operating expenses for January: Estimated other revenue and expense for January: Estimated tax rate: 25% Instructions Prepare a sales budget for January. Prepare a production budget for January. Prepare a direct materials purchases budget for January. Prepare a direct labor cost budget for January. Prepare a factory overhead cost budget for January. Prepare a cost of goods sold budget for January. Work in process at the beginning of January is estimated to be 9,000, and work in process at the end of January is estimated to be 10,500. Prepare a selling and administrative expenses budget for January. Prepare a budgeted income statement for January.arrow_forward
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