Module 6 Review Questions
III. Preparation of merchandise purchases budgets (for three periods)
Formworks Company prepares monthly budgets. The current budget plans for aSeptember ending inventory of 15,000 units. Company policy is to end eachmonth with merchandise inventory equal to a specified percent of budgeted salesfor the following month. Budgeted sales and merchandise purchases for thethree most recent months follow.
1. Prepare the merchandise purchases budget for the months of July, August,and September.
2. Compute the ratio of ending inventory to the next month’s sales for eachbudget prepared in part 1.
3. How many units are budgeted for sale in October?
III. Preparation of cash budgets (for three periods)
Kasik Company budgeted the following cash receipts and cash disbursementsfor the first three months of next year.
According to a credit agreement with the company’s bank, Kasik promises tohave a minimum cash balance of $30,000 at each month-end. In return, thebank has agreed that the company can borrow up to $150,000 at an annualinterest rate of 12%, paid the last day of each month. The interest is computedbased on the beginning balance of the loan for the month. The company has acash balance of $30,000 and a loan balance of $60,000 at January 1. Preparemonthly cash budgets for each of the first three months of next year.
III. Computing budgeted cash payments for purchases
Powerdyne Company’s cost of goods sold is consistently 60% of sales. Thecompany plans to carry ending merchandise inventory for each month equal to40% of the next month’s budgeted cost of goods sold. All merchandise ispurchased on credit, and 50% of the purchases made during a month is paid forin that month. Another 35% is paid for during the first month after purchase, andthe remaining 15% is paid for during the second month after purchase.
Expected dollar sales are:
August (actual), $150,000
September (actual), $350,000
October (estimated), $200,000
November (estimated) $300,000.
Use this information to determine October’s expected cash payments forpurchases.
IV.Budgeted Cash Receipts
Emily Company has sales on account and sales for cash. Specifically, 60% of itssales are on account and 40% are for cash. Credit sales are collected in full inthe month following the sale. The company forecasts sales of $525,000 for April,$535,000 for May, and $560,000 for June. The beginning balance of A
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