Questions
Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions:
SALES:
Each month's sales are billed on the last day of the month. Customers are allowed a 3% 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). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible.
PURCHASES:
The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's units of sales. The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales
Dollars Units
March $ 472,000 11,800
April $ 484,000 12,100
May $ 476,000 11,900
June $ 456,000 11,400
July $ 480,000 12,000
August $ 480,000 12,200
Answer:
Purchases for July = 12,250 units
Explanation:
The units to be purchased in the July will be calculated as the budgeted sales units less the opening inventory plus the closing inventory .
Purchases = Sales + closing inventory - opening inventory
So we need to work out these figures as follows:
Sales units in July = 12,000
Closing inventory in July = 125% × August = 125%× 12,200 = 15250
Opening inventory in July = Closing inventory of June = 125 × 12,000 = 15,000
Purchases for July = 12,000 + 15,250 - 15,000= 12,250 units
Purchases for July = 12,250 units
