Mate boomerang corporation manufactures and sells

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120. Mate Boomerang Corporation manufactures and sells plastic boomerangs. Expected boomerang  sales (in units) for the upcoming months are as follows: Seven ounces of plastic resin are needed to produce every boomerang. Mate likes to have enough plastic  resin on hand at the end of the month to cover 25% of the next month’s production requirements. Mate  also likes to maintain a finished goods inventory equal to 10% of the next month’s estimated sales.  Required: How many ounces of plastic resin should Mate plan on purchasing during the month of October? Level: Hard    LO:  2,3     Brewer, Introduction to Managerial Accounting, 3/e 145
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Ans:   October production = 8,000 + (7,000  ×  10%) - (8,000  ×  10%) = 7,900; November production = 7,000 + (11,000  ×  10%) - (7,000  ×  10%) = 7,400; October production resin needs = 7,900  ×  7 = 55,300 ounces November production resin needs = 7,400  ×  7 = 51,800 ounces October resin purchases = 55,300 + (51,800  ×  25%) - (55,300  ×  25%)                                         = 54,425 ounces  121. All sales at Meeks Company, a wholesaler, are made on credit. Experience has shown that 70% of  the accounts receivable are collected in the month of the sale, 26% are collected in the month following  the sale, and the remaining 4% are uncollectible. Actual sales for March and budgeted sales for the  following four months are given below: The company’s cost of goods sold is equal to 60% of sales. All purchases of inventory are made on credit. Meeks Company pays for one half of a month’s purchases in the month of purchase, and the other half in  the month following purchase. The company requires that end-of-month inventories be equal to 25% of  the cost of goods sold for the next month. Required: (a.) Compute the amount of cash, in total, which the company can expect to collect in May. (b.) Compute the budgeted dollar amount of inventory which the company should have on hand at the end of April. (c.) Compute the amount of inventory that the company should purchase during the months of May and  June. (d.) Compute the amount of cash payments that will be made to suppliers during June for purchases of  inventory. Level: Medium    LO:  2,3,4     Ans:   (b.) Budgeted cost of goods sold for May: $500,000  ×  60% = $300,000 Required inventory level at the end of April: $300,000  ×  25% = $75,000 Brewer, Introduction to Managerial Accounting, 3/e 146
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*Following month’s cost of goods sold  ×  25% **Current month’s cost of goods sold  ×  25% 122. The following information is budgeted for McCracken Plumbing Supply Company for next quarter: All sales at McCracken are on credit. Forty percent are collected in the month of sale, 58% in the month 
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