Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:
Beech Corporation
Balance Sheet
June 30
Assets
Cash
$ 84,000
Accounts receivable
144,000
Inventory
63,750
Plant and equipment, net of depreciation
223,000
Total assets
$ 514,750
Liabilities and Stockholders’ Equity
Accounts payable
$ 84,000
Common stock
349,000
Retained earnings
81,750
Total liabilities and stockholders’ equity
$ 514,750
Beech’s managers have made the following additional assumptions and estimates:
Estimated sales for July, August, September, and October will be $340,000, $360,000, $350,000, and $370,000, respectively.
All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.
Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 75% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.
Monthly selling and administrative expenses are always $44,000. Each month $6,000 of this total amount is depreciation expense and the remaining $38,000 relates to expenses that are paid in the month they are incurred.
The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.
Required:
1. Prepare a schedule of expected cash collections for July, August, and September.
2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.
Transcribed Image Text:### Merchandise Purchases Budget
**Objective:** Prepare a merchandise purchases budget for July, August, and September. Also, compute the total merchandise purchases for the quarter ended September 30.
#### Merchandise Purchases Budget
| | **July** | **August** | **September** | **Quarter** |
|----------------------|------------|------------|---------------|--------------|
| **Budgeted cost of goods sold** | $255,000 | $270,000 | $262,500 | $787,500 |
| **Add: Desired ending merchandise inventory** | $67,500 | $65,625 | $69,375 | $69,375 |
| **Total needs** | $322,500 | $335,625 | $331,875 | $856,875 |
| **Less: Beginning merchandise inventory** | $63,750 | $67,500 | $65,625 | $63,750 |
| **Required purchases** | $258,750 | $268,125 | $266,250 | $793,125 |
**Explanation:**
1. **Budgeted Cost of Goods Sold**: Represents the expected cost of merchandise that will be sold during each month and for the quarter.
2. **Desired Ending Merchandise Inventory**: This is the inventory level a company wants to maintain at the end of each month, ensuring adequate stock for the future sales period.
3. **Total Needs**: Sum of the budgeted cost of goods sold and the desired ending inventory. It represents the total merchandise requirement for the period.
4. **Beginning Merchandise Inventory**: This is the inventory available at the start of the month, which helps determine the amount of additional inventory needed.
5. **Required Purchases**: Calculated by subtracting the beginning inventory from the total needs. It represents the quantity of merchandise that must be purchased during the month to meet sales and inventory goals.
Transcribed Image Text:# Schedule of Expected Cash Collections for July, August, and September
This document outlines the schedule of expected cash collections over the third quarter, specifically for the months of July, August, and September.
## Table: Schedule of Expected Cash Collections
| Source of Cash Collection | July | August | September | Quarter |
|---------------------------|---------|---------|-----------|-----------|
| From accounts receivable | $144,000| | | $144,000 |
| From July sales | $119,000| $221,000| | $340,000 |
| From August sales | | $126,000| $234,000 | $360,000 |
| From September sales | | | $122,500 | $122,500 |
| **Total cash collections**| $263,000| $347,000| $356,500 | **$966,500**|
### Explanation
- **From Accounts Receivable:** $144,000 is expected from outstanding accounts receivable, entirely collected in the quarter.
- **From Sales:**
- July Sales: Cash collections of $119,000 occur in July, followed by $221,000 in August.
- August Sales: Cash collections start in August at $126,000, with an additional $234,000 in September.
- September Sales: These are collected within the same month, totaling $122,500.
### Total Cash Collections
- July: $263,000
- August: $347,000
- September: $356,500
- For the quarter: $966,500
This schedule is crucial for financial planning and ensures adequate cash flow management throughout the quarter.
Definition Definition Money that the business will be receiving from its clients who have utilized the credit provided to buy its goods and services. The credit period typically lasts for a short term, lasting from a few days, a few months, to a year.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
