Abacus Company sells Its product for $170 per unit. Its actual and projected sal
ID: 2475297 • Letter: A
Question
Abacus Company sells Its product for $170 per unit. Its actual and projected sales follow. All sales are on credit. Recent experience shows that 24% of credit sales is collected in the month ofthe sale. 46% in the month after the sale. 25% in the second month after the sale, and 5% proves to be uncollectible The product s purchase price is $110 per unit. All purchases are payable within 12 days. Thus. 60% of purchases made in a month is paid in that month and the other 40% is paid in the next month. The company has a policy to maintain an ending monthly inventory of 23% of the next month's unit sales plus a safety stock of 65 units The April 30 and May 31 actual inventory levels are consistent with this policy. Selling and administrative expenses for the year are $1,656,000 and are paid evenly throughout the year in cash. The company's minimum cash balance at month-end is $84,000. This minimum is maintained, if necessary, by borrowing cash from the bank. If the balance exceeds $84,000. the company repays as much of the loan as it can without going below the minimum. This type of loan carries an annual 13% interest rate On May 31. the loan balance is $31,500. and the company's cash balance is $84,000.Explanation / Answer
Answer 1. Cash Collection of Credit Sales (Accounts Receivables) From Sales in Total % Collected June July April 1,445,000 25% 361,250 May 680,000 46% 312,800 25% 170,000 June 1,275,000 24% 306,000 46% 586,500 July 850,000 24% 204,000 Total Collected 980,050 960,500 Answer 2. Budgeted Ending Inventories (In Units) April May June July Next Month Budgeted Sales 4,000 7,500 5,000 3,800 Ratio of Inventory to Future Sales 23% 23% 23% 23% Budgeted 'base' ending Inventory 920 1,725 1,150 874 Plus Safety Stock 65 65 65 65 Budgeted Ending Inventory 985 1,790 1,215 939 Answer 3. Abacus Company Merchandise Purchase Budget For May, June & July May June July Sales In Units 4,000 7,500 5,000 Add: Ending Inventory 1,790 1,215 939 Total Need 5,790 8,715 5,939 Less: Inventory at the beginning (985) (1,790) (1,215) Purchases during the Month 4,805 6,925 4,724 Purchase Cost per Unit 110 110 110 Total Purchase Cost 528,550 761,750 519,640 Answer 4. Cash Payment on Product Purchases (For June & July) From Purchases in Total % Paid June July May 528,550 40% 211,420 June 761,750 60% 457,050 40% 304,700 July 519,640 60% 311,784 Total Paid 668,470 616,484 Answer 5. Abacus Company Cash Budget June July Balance at the Beginning 84,000 225,739 Cash Collected from Accounts Receivables 980,050 960,500 Total Cash available from operations 1,064,050 1,186,239 Less: Cash Disbursements Merchandise Purchases (668,470) (616,484) Selling & Admn. Exp. (138,000) (138,000) Total Disbursement (806,470) (754,484) Excess cash avail over disburse & Invest. 257,580 431,755 Financing: Bank Loan - Repayment of Bank Loan 31,500 - Interest on Bank Loan 341 - Total Financing 31,841 - Net Cash Balance Closing 225,739 431,755