Question

Managerial Accounting Case 2

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