Reference no: EM132974537

Question 1 - A merchandising firm by the name of Star Wars Enterprises, had an inventory of 45,000 units on March 31, and it had accounts receivable totaling $84,500. Sales, in units, have been budgeted as follows for the next four months:

April 54,000

May 65,000

June 85,000

July 81,000

To be enforced in April, Star Wars board of directors has established a policy that states that the inventory at the end of each month should contain 35% of the units required for the following month's budgeted sales. $2.5 is the selling price per unit. One-Quarter of sales are paid for by customers in the month of the sale; the balance is collected in the following month.

Required -

1. Draw merchandise purchases budget showing how many units should be purchased for each of the months April, May, and June.

2. Draw schedule of expected cash collections for each of the months April, May, and June.

Question 2 - Fonsey Corporation, a merchandising company, has provided the following budget data:

Purchases. Sales. Month

$39,500 $69,000 January

47,200. 65,900. February

37,500 61,200 March

54,000 79,850 April

59,500 72,600 May

Collections from customers are normally 63% in the month of sale, 20% in the month following the sale, and 14% in the second month following the sale. It is expected that the balance be uncollectible. Fonsey pays for purchases in the month following the purchase. Cash disbursements for expenses other than merchandise purchases are expected to be $13,500 for May. Fonsey's cash balance on May 1 was $24,500.

Required -

1. Compute the expected cash collections during May.

2. Compute the expected cash balance on May 31.