Mate Boomerang Corporation manufactures and sells plastic boomerangs. Expected boomerang sales (in units) for the upcoming months are as follows:

120. Mate Boomerang Corporation manufactures and sells plastic boomerangs. Expected boomerang sales (in units) for the upcoming months are as follows:

 

Seven ounces of plastic resin are needed to produce every boomerang. Mate likes to have enough plastic resin on hand at the end of the month to cover 25% of the next month’s production requirements. Mate also likes to maintain a finished goods inventory equal to 10% of the next month’s estimated sales.

Required:

How many ounces of plastic resin should Mate plan on purchasing during the month of October?

Level: Hard    LO:  2,3   

Ans: 

October production = 8,000 + (7,000 × 10%) - (8,000 × 10%) = 7,900;

November production = 7,000 + (11,000 × 10%) - (7,000 × 10%) = 7,400;

October production resin needs = 7,900 × 7 = 55,300 ounces

November production resin needs = 7,400 × 7 = 51,800 ounces

October resin purchases = 55,300 + (51,800 × 25%) - (55,300 × 25%)

                                       = 54,425 ounces

121. All sales at Meeks Company, a wholesaler, are made on credit. Experience has shown that 70% of the accounts receivable are collected in the month of the sale, 26% are collected in the month following the sale, and the remaining 4% are uncollectible. Actual sales for March and budgeted sales for the following four months are given below:

 

The company’s cost of goods sold is equal to 60% of sales. All purchases of inventory are made on credit. Meeks Company pays for one half of a month’s purchases in the month of purchase, and the other half in the month following purchase. The company requires that end-of-month inventories be equal to 25% of the cost of goods sold for the next month.

Required:

(a.) Compute the amount of cash, in total, which the company can expect to collect in May.

(b.) Compute the budgeted dollar amount of inventory which the company should have on hand at the end of April.

(c.) Compute the amount of inventory that the company should purchase during the months of May and June.

(d.) Compute the amount of cash payments that will be made to suppliers during June for purchases of inventory.

Level: Medium    LO:  2,3,4   

Ans: 

122. The following information is budgeted for McCracken Plumbing Supply Company for next quarter:

 

All sales at McCracken are on credit. Forty percent are collected in the month of sale, 58% in the month following the sale, and the remaining 2% are uncollectible. Merchandise purchases are paid in full the month following the month of purchase. The selling and administrative expenses above include $8,000 of depreciation on display fixtures and warehouse equipment. All other selling and administrative expenses are paid as incurred. McCracken wants to maintain a cash balance of $15,000. Any amount below this can be borrowed from a local bank as needed in increments of $1,000. All borrowings are made at month end.

Required:

Prepare McCracken’s cash budget for the month of May. Use good form. McCracken expects to have $24,000 of cash on hand at the beginning of May.

Level: Medium    LO:  2,3,7,8   

Ans: 

 

123. The Fraley Company, a merchandising firm, has planned the following sales for the next four months:

 

Sales are made 40% for cash and 60% on account. From experience, the company has learned that a month’s sales on account are collected according to the following pattern:

 

The company requires a minimum cash balance of $4,000 to start a month.

Required:

(a.) Compute the budgeted cash receipts for June.

(b.) Assume the following budgeted data for June:

 

Using this data, along with your answer to part (1) above, prepare a cash budget in good form for June. Clearly show any borrowing needed during the month. The company can borrow in any dollar amount, but will not pay any interest until the following month.

Level: Medium    LO:  2,8   

Ans: