Question

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, 69% of the credit sales were collected in the month of sale, 21% were collected in the first month following the sale and 10% 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 $45,000 will be

     paid in September, and (c) purchase of a used van in October for $60,000

     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. SHOW ALL

         CALCULATIONS.

     (b) Prepare a cash budget for the months of September and October.

Show all calculations

Answer 1

(a)

Schedule of Expected Collections from Customers
	September	October
Collection of sales for the month of:
July ($250000 x 10%)	25000
August ($190000 x 21%); ($190000 x 10%)	39900	19000
September ($150000 x 69%); ($150000 x 21%)	103500	31500
October ($140000 x 69%)		96600
Total expected collections $	168400	147100
Schedule of Expected Payments for Purchases of Inventory
	September	October
Payments for purchases in the month of:
August ($100000 x 72%)	72000
September ($125000 x 28%); ($125000 x 72%)	35000	90000
October ($150000 x 28%)		42000
Total expected payments $	107000	132000

(b)

Marshall Department Stores
Cash Budget
For the Months of September and October
	September	October
Beginning cash balance $	50000	50000
Add collections from customers	168400	147100
Total cash available	218400	197100
Less cash disbursements:
Purchases of inventory	107000	132000
Selling and administrative expenses	20000	20000
Cash dividends	45000	0
Purchase of used van	0	60000
Total cash disbursements	172000	212000
Excess (deficiency) of cash	46400	-14900
Financing:
Borrowings	3600	64900
Repayments	0	0
Total financing	3600	64900
Ending cash balance $	50000	50000