MGMT 312,

Module 6 Review Questions

Preparation of merchandise purchases budgets (for three periods)
Formworks Company prepares monthly budgets. The current budget plans for a
September ending inventory of 15,000 units. Company policy is to end each
month with merchandise inventory equal to a specified percent of budgeted sales
for the following month. Budgeted sales and merchandise purchases for the
three 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 each
budget prepared in part 1.
3. How many units are budgeted for sale in October?

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MGMT 312,

Module 6 Review Questions

Preparation of cash budgets (for three periods)
Kasik Company budgeted the following cash receipts and cash disbursements
for the first three months of next year.

According to a credit agreement with the company’s bank, Kasik promises to
have a minimum cash balance of $30,000 at each month-end. In return, the
bank has agreed that the company can borrow up to $150,000 at an annual
interest rate of 12%, paid the last day of each month. The interest is computed
based on the beginning balance of the loan for the month. The company has a
cash balance of $30,000 and a loan balance of $60,000 at January 1. Prepare
monthly cash budgets for each of the first three months of next year.

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MGMT 312,

Module 6 Review Questions

Computing budgeted cash payments for purchases
Powerdyne Company’s cost of goods sold is consistently 60% of sales. The
company plans to carry ending merchandise inventory for each month equal to
40% of the next month’s budgeted cost of goods sold. All merchandise is
purchased on credit, and 50% of the purchases made during a month is paid for
in that month. Another 35% is paid for during the first month after purchase, and
the 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 for

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MGMT 312,

Module 6 Review Questions

Budgeted Cash Receipts
Emily Company has sales on account and sales for cash. Specifically, 60% of its
sales are on account and 40% are for cash. Credit sales are collected in full in
the 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 Accounts
Receivable on April 1 is $300,000.
Prepare a schedule of budgeted cash receipts for April, May, and June.

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