2. (12 points) Weldon Industrial Gas Corporation supplies acetylene and other co

Question

2. (12 points) Weldon Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow: •The company sells each unit for $45. Budgeted Sales: Month October November December January Sales in Units 30,000 25,000 40,000 30,000 •Collections are expected to be 70% in the month of sale, 30% in the month following the sale. •The A/R balance at September 30th will be collected in full in October. •The cost of the merchandise is $32 per unit. •In addition to meeting the current month’s sales demand, management wants to maintain and ending inventory balance of 10% of the next month’s sales. •The ending inventory balance at September 30th is 2,625 units. •Payment for merchandise is made as follows: ½ paid in the month of the purchase, ½ paid the month following the purchase. •The A/P balance at September 30th will be paid in full in October. •Other monthly expenses to be paid in cash are $300,000. Balance Sheet September 30 Assets Cash $ 16,000 Accounts receivable 250,000 Inventory 84,000 Property, plant and equipment (net of $500,000 accumulated depreciation) 980,400 Total assets $1,330,400 Liabilities and Stockholders’ Equity Accounts payable $ 42,000 Common stock 840,000 Retained earnings 448,400 Total liabilities and stockholders’ equity $1,330,400 Required: a. Prepare a Sales Budget for October, November and December. b. Prepare a Schedule of Expected Cash Collections for October, November and December. c. Prepare a Merchandise Purchases Budget for October, November and December. d. Prepare a Schedule of Expected Cash Disbursements for October, November and December. e. Prepare Cash Budgets for October, November and December.

Explanation / Answer

Working Note

Account receivable = 250000 $

Unit Rate = 45

Account receivable in units = 250000/45

= 5555.56 units

Co has the policy of ,maintaining 10% of inventory = I.e = 5000 units

70 % of cummulative = 5000/30*70= 15000

So, total sale = 20000 units

Sale Budget 1) September October November December Budget (Units) 20000 30000 25000 40000 Unit rate ($) 45 45 45 Sale Budget 1350000 1125000 1800000 2) October November December Sale Collection (70%) 21000 17500 28000 30% 6000 9000 7500 Total Debtors 27000 26500 35500 Unit rate ($) 45 45 45 Sale Collection in $ 1215000 1192500 1597500 3) Purchase Budget October November December Current (90%) 18000 27000 22500 36000 10% 3000 2500 4000 3000 Total Purchases 21000 29500 26500 39000 Unit rate ($) 32 32 32 32 Purchase Budget 672000 944000 848000 1248000 4) Cash Payments October November December payment for Purchase (50%) 472000 424000 624000 50% 336000 472000 424000 Monthly Expenses 300000 300000 300000 Total 1108000 1196000 1348000 5) Cash Budget October November December Opening 16000 123000 119500 Cash receipt 1215000 1192500 1597500 cash Payment 1108000 1196000 1348000 Closing balance 123000 119500 369000

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