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.

Answer 1

(A) 1)     Schedule of Expected Collections from Customers
	September	October
Cash Collection of sales for the month of:	Amount ($)	Amount ($)
July (250,000 x .10)	25,000	-
August (190,000 x .21); ($190,000 x .10)	39,900	19,000
September (150,000 x .69); ($150,000 x .21)	1,03,500	31,500
October (140,000 x .69)	-	96,600
Expected collections (Total)	1,68,400	1,47,100

(A)   2)      Schedule of Expected Payments for Purchases of Inventory
	September	October
Cash Payments for purchases in the month of:	Amount ($)	Amount ($)
August (100,000 x.72)	72,000	-
September (125,000 x .28),($125,000 x .72)	35,000	90,000
October (150,000 x .28)	-	42,000
Expected payments (Total)	1,07,000	1,32,000

(b)                                             Marshall Department Stores
Cash Budget
For the Months of September and October
	September	October
	Amount ($)	Amount ($)
Beginning cash balance	50,000	50,000
Add :Collections from customers	1,68,400	1,47,100
Cash available(Total)	2,18,400	1,97,100
Less :cash disbursements:
Purchases of inventory	1,07,000	1,32,000
Selling and administrative expenses	20,000	20,000
Cash dividends	45,000	-
Purchase of used van	-	60,000
Total cash disbursements	1,72,000	2,12,000
Excess (deficiency) of cash	46,400	-14,900
Financing: -Borrowings	3,600	64,900
-Re-payments	-	-
Total financing	3,600	64,900
Ending cash balance	50,000	50,000