Problem
Marshall Department Stores has budgeted sales revenues as follows:
Credit sales July $250,000
August 190,000
September 150,000
October 140,000
In the past, 75% of the credit sales were collected in the month of sale, 20% were collected in the first month following the sale and 5% in the second month following the sale. Purchases of inventory are all on credit and 28% is paid in the month of purchase and 72% in the month following purchase. Budgeted inventory purchases are:
July $200,000
August 100,000
September 125,000
October 150,000
Other cash disbursements budgeted: (a) selling and administrative expenses of $20,000 each month, (b) dividends of $50,000 will be paid in September, and (c) purchase of a van in October for $45,000 cash.
The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on September 1 was $50,000.
If money is borrowed, ignore interest
INSTRUCTIONS
(a) Prepare separate schedules for (1) expected collections from customers and (2)expected payments for purchases of inventory.
(b) Prepare a cash budget for the months of September and October.