Question

McMurray & Sons is a retailer of stuffed animals.   All items in the store sell for the same $18 selling

price. McMurray estimates that 25% of its sales are for cash and 75% are on account. Other

information regarding the company's budgeted sales and collection of credit sales are as follows:

Budgeted sales in units			Credit Sales Collection Pattern
December	9,000		Collected in same month as sale	50%
January	1,000		Collected 1 months following sale	50%
February	2,000
March	2,500
April	3,000

McMurray buys its animals from one supplier at a cost of $6 per animal. It pays for all of its

merchandise purchases in the month following purchase. McMurray began January with 100

stuffed animals in inventory. The company has an purchases budget policy of having 10% of the

following month's anticipated sales in stock at the end of every month. December's purchases

totaled $49,200.

McMurray's monthly expenses are as follows:
	$       1,500	Depreciation of store building & fixtures
	10,000	Salaries and other payroll items
	2,500	Advertising
	2,000	Utilities
	7,000	Other operating expenses
	$      23,000

In addition to these expenses, McMurray pays insurance premiums of $4,000 in January and

June, and pays $5000 in property taxes every February.

McMurray began January with $25,000 in its bank account. The company maintains a minimum cash

balance of $25,000. An open line of credit is available from the company's bank to bolster its cash

position when needed. Any excess cash over $25,000 should be applied against monies

borrowed. (Ignore interest)

REQUIRED:

(1) Prepare a schedule of cash collections for January, February, and March.

(2) Prepare a merchandise purchases budget for January, February, and March.

(3) Prepare a cash budget for January, February, and March.

Answer 1