Purchases and Cash Budgets On July 1, MTC Wholesalers had a cash balance of $175

Question

Purchases and Cash Budgets

On July 1, MTC Wholesalers had a cash balance of $175,000 and accounts payable of $99,000. Actual

sales for May and June, and budgeted sales for July, August, September, and October are:

Month

Actual

Sales Month

Budgeted

Sales

May. . . . . . . . . . . . . . . . . . . . . . $150,000 July . . . . . . . . . . . . . . . . . . . . . . $ 90,000

June . . . . . . . . . . . . . . . . . . . . . 160,000 August . . . . . . . . . . . . . . . . . . . 80,000

September . . . . . . . . . . . . . . . . 100,000

October . . . . . . . . . . . . . . . . . . 120,000

All sales are on credit with 75 percent collected during the month of sale, 20 percent collected during

the next month, and 5 percent collected during the second month following the month of sale. Cost

of goods sold averages 70 percent of sales revenue. Ending inventory is one-half of the next month’s

predicted cost of sales. The other half of the merchandise is acquired during the month of sale. All pur-

chases are paid for in the month after purchase. Operating costs are estimated at $28,000 each month

and are paid during the month incurred.

Required

Prepare purchases and cash budgets for July, August, and September

Explanation / Answer

EXPECTED CASH COLLECTIONS July Aug Sep QUARTER May Month Sales 7,500 7,500 June Month sales 32,000 8000 40,000 July month sales 67500 18000 4500 90,000 Aug Month sales 60,000 16,000 76,000 Sep montnh sale 75000 75,000 Total Cash Collections 107,000 86,000 95,500 288,500 RAW MATERIAL PURCHASE BUDGET July Aug Sep QUARTER Oct Budgeted Sales 90,000 80,000 100,000 270,000 120,000 Cost of goods sold % of sales 70% 70% 70% 70% 70% Budgeted Cost of Goods sold 63,000 56,000 70,000 189,000 84,000 Add: Desired Ending Inventory 28,000 35,000 42,000 42,000 Total needs 91,000 91,000 112,000 231,000 Less: Beginning Inventory 31,500 28,000 35,000 31,500 Budgeted Purchases in $ 59,500 63,000 77,000 199,500 EXPECTED CASH PAYMENTS July Aug Sep Quarter Beginning Accounts payable 99,000 99,000 July month purchase 59500 59,500 Aug month purchase 63000 63,000 Total Cash disbursement 99,000 59,500 63,000 221,500 CASH BUDGET: July Aug Sep Quarter Cash Balance 175000 155000 153500 175000 Cash collections 107000 86000 95500 288500 Total cash available 282000 241000 249000 463500 Cash disbursement: Cash payment for purchases 99000 59500 63000 221500 Operating expense 28000 28000 28000 84000 Total cash idsbursement 127000 87500 91000 305500 Ending cash balance 155000 153500 158000 158000

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