At March 31 MCA Enterprises, a merchandising firm, had an inventory of 27,000 units, and it had accounts receivable totaling $85,000 (the entire amount will be collected in April). Sales, in units, have been budgeted as follows for the next three months:

April 90,000

May 75,000

June 80,000

The companys board of directors has established a policy that the inventory at the end of each month should contain 30% of the units required for the following month's budgeted sales.

The selling price is $5 per unit. 40% of sales are paid for by customers in the month of the sale, 50% in the month following the sales and the balance is considered uncollectable

Required:

1. Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April and May. [2 marks]

2. Prepare a schedule of expected cash collections for each of the months April and May. [3 marks]

For April, MCA had an opening cash balance of $6,000. Purchased inventory cost $2.00 per unit and is paid in full in the month of purchase. Other costs for the month of April include advertising of $12,000, rent of $6,000, depreciation of $14,000, and general management cost of $19,000. The company decided starting this month they need to have a cash minimum of $50,000. Prepare a cash budget for April and determine how much they will need to borrow or if they have excess cash? [5 marks]