Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $12,500, accounts receivable of $465,000, inventories of $474,250, and accounts payable of $161,055. The budget is to be based on the following assumptions: What are the budgeted number of inventory units that need to be purchased in July?

Questions

Kevin Montgomery Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $446,250, and accounts payable of $133,055. The budget is to be based on the following assumptions:

SALES:

Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible.

PURCHASES:

The marketing, general, and administrative expenses and 60% of all purchases of merchandise are paid in the month purchased, with the remainder of merchandise purchases paid in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's units of sales. The cost of each unit of inventory is $30. Marketing, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales

Dollars                            Units  

March$472,000  11,800  

April$484,000  12,100  

May$        476,000  11,900  

June$456,000  11,400  

July        $480,000  12,000  

August$480,000  12,200

Purchases for July = 12,250 units

Explanation:

The units to be purchased in the July will be calculated as the budgeted sales units less the opening inventory plus the closing inventory .

Purchases = Sales + closing inventory - opening inventory

So we need to work out these figures as follows:

Sales units in July = 12,000

Closing inventory in July = 125%  × August = 125%× 12,200 = 15250

Opening inventory in July = Closing inventory of June = 125 × 12,000 = 15,000

Purchases for July = 12,000 + 15,250 -  15,000=  12,250 units

Purchases for July = 12,250 units