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

1) Schedule of cash Collections for JAnuary, Februry, MArch

Particulars	December	January	February	March
Units	9000	1000	2000	2500
Sale Price	$18	$18	$18	$18
Sales (1)	$162,000	$18,000	$36,000	$45,000
25%Cash Sales : 25%of (1)	$40,500	$4,500	$9,000	$11,250
75%Credit 0.75*(1) = (2)	$121,500	$13,500	$27,000	$33,750
50% of Credit sales received in the current month .eg-121500*50% = (3)	$60,750	$6,750	$13,500	$16,875
50% Received in the following month= (4)		$60,750	6750	13500
Total Cash Collected (1)+(3)+(4)		$72,000	$29,250	$41,625

2) Merchandised purchased budget for Jan, Feb , March

Particulars	December	January	February	March	April
Estimated Sales	9000	1000	2000	2500	3000
Units -closing inventory requirement= Following months 10% of budgeted sales . Eg - For: jan 10%of febs estimated sales	100	200	250	300
Less - Inventory Already in Stock for the month i.e opening inventory for the month	-900	-100	-200	-250
Total Purchases for the month (units)	8200	1100	2050	2550
$ 6 per unit	49200	6600	12300	15300
Payment is made 1month following the purchases=Cash Flow for purchase		49200	6600	12300

(3) Cash Budget for Jan, Feb, MArch

Particulars	Jan	Feb	March
Sales from Table 1	72000	29250	41625
Less- Purchases from Table 2	-49200	-6600	-12300
Less-
depreciation of store buildings and fixtures	nil	nil	nil
Salaries and other payroll	-10000	-10000	-10000
Advertising	-2500	-2500	-2500
utilities	-2000	-2000	-2000
other prepaid expenses	-7000	-7000	-7000
Insurance Premium	-4000
Property tax		-5000
Cash Generated from operations (total)	-2700	-3850	7825
opening Cash Balance	25000	25000	25000
Closing Cash Balance	22300	21150	32825
Add - loan taken	2700	3850	-7825
Closing Cash Balance	25000	25000	25000