Reference no: EM132753972

Questions -

Q1. Montero Corporation, a merchandising company, has provided the following budget data:

Purchases Sales

January $42,000 $72,000

February 48,000 66,000

March 36,000 60,000

April 54,000 78,000

May 60,000 66,000

Collections from customers are normally 70% in the month of sale, 20% in the month following the sale, and 9% in the second month following the sale. The balance is expected to be uncollectible. Montero pays for purchases in the month following the purchase. Cash disbursements for expenses other than merchandise purchases are expected to be $14,400 for May. Montero's cash balance at May 1 was $22,000.

Required -

a. Compute the expected cash collections during May.

b. Compute the expected cash balance at May 31.

Q2. At March 31 Streuling Enterprises, a merchandising firm, had an inventory of 38,000 units, and it had accounts receivable totalling $85,000. Sales, in units, have been budgeted as follows for the next four months:

April 60,000

May 75,000

June 90,000

July 81,000

Streuling's board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales.

The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale, the balance is collected in the following month.

Required:

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

b. Prepare schedule of expected cash collections for each of the months April, May, and June.