Homework SourseQuestion 1 Amway Company a merchandising firm that sells one
Question 1
Amway Company, a merchandising firm that sells one product, estimates it will sell 17,000 units of its product at $63 per unit in December. In November, the company prepared other information to prepare a budget for December, as shown here:
Merchandise inventory, December 1
2200 units
Desired merchandise inventory for December 31
2800 units
Cost per unit of merchandise purchases
$38.00
Selling and administrative expenses
$175,000.00
Cash balance, December 1
$42,000.00
November sales
$640,000.00
· The company estimates that 60% of each month\'s sales are collected in the month of sale and that the remaining 40% is collected in the month after the sale.
· The $175,000 of selling and administrative expenses includes $30,000 of depreciation.
· the company pays for half of the merchandise purchases during the month of purchase and pays the remainder during the month following purchase. Estimated merchandise purchases for November are $384,000.
· All other out-of-pocket expenses are paid for in cash.
Requirements
a) How many units of merchandise will Amway budget to purchase in December? What is the dollar amount of Amway\'s budgeted merchandise purchases for December?
b) Prepare a budgeted income statement for the month ended December for Amway Company.
c) Prepare a statement of estimated cash flows for the month ended December for Amway Company.
Merchandise Inventory:
Unit
Dollar Value
Inventory needs
Budgeted purchases
| Merchandise inventory, December 1 | 2200 units |
| Desired merchandise inventory for December 31 | 2800 units |
| Cost per unit of merchandise purchases | $38.00 |
| Selling and administrative expenses | $175,000.00 |
| Cash balance, December 1 | $42,000.00 |
| November sales | $640,000.00 |
Solution
Answers
Merchandise Inventory:
Unit
Dollar Value
A
Budgeted Sales
17000
$ 10,71,000.00
B
Desired Ending Inventory
2800
C = A+B
Inventory needs
19800
D
Beginning Inventory
2200
E = C - D
Budgeted purchases
17600
$ 6,68,800.00
Working for Cost of Goods Sold
Units
Amount
A
Beginning Inventory
2200
$ 83,600.00
B
Purchases
17600
$ 6,68,800.00
C=A+B
Cost of Goods Available for sale
19800
$ 7,52,400.00
D
Ending Inventory
2800
$ 1,06,400.00
E=C - D
Cost of Goods Sold
17000
$ 6,46,000.00
---Budgeted Income Statement for month ended December
A
Sales revenue [17000 x $63]
$ 10,71,000.00
B
Cost of Goods Sold
$ 6,46,000.00
C=A-B
Gross Profits
$ 4,25,000.00
D
Selling & Administrative expense
$ 1,75,000.00
E=C-D
Net Operating Income/Net Income
$ 2,50,000.00
Working for cash collected in Nov and Dec
November
December
Total Sales
$ 6,40,000.00
$ 10,71,000.00
Cash collected in for:
November Sale
$ 3,84,000.00
$ 2,56,000.00
December Sale
$ 6,42,600.00
Total Cash collected
$ 3,84,000.00
$ 8,98,600.00
Working for cash payments for purchases in Nov and Dec
November
December
Purchases
$ 3,84,000.00
$ 6,68,800.00
Cash paid for purchases of:
November
$ 1,92,000.00
$ 1,92,000.00
December
$ 3,34,400.00
Total cash paid for purchases
$ 1,92,000.00
$ 5,26,400.00
---Answer: Statement of Estimated cash Flows
A
Beginning balance
$ 42,000.00
B
Cash collected (or Inflows)
$ 8,98,600.00
C=A+B
Total cash available
$ 9,40,600.00
Cash disbursement (or Outflows)
D
Cash paid for purchases
$ 5,26,400.00
E = $175000 - depreciation of $30,000
Cash paid for Selling & administrative expenses
$ 1,45,000.00
F = D + E
Total Cash Outflows
$ 6,71,400.00
G = C - F
Cash Ending Balance
$ 2,69,200.00
| Merchandise Inventory: | Unit | Dollar Value | |
| A | Budgeted Sales | 17000 | $ 10,71,000.00 |
| B | Desired Ending Inventory | 2800 | |
| C = A+B | Inventory needs | 19800 | |
| D | Beginning Inventory | 2200 | |
| E = C - D | Budgeted purchases | 17600 | $ 6,68,800.00 |
