Question

Q. 1 (Max. Marks:30)
Tom plans to sell CD players over the internet & by mail order . He buys the players for $31 & sells them for $52. If payment by cheque accompanies the mail order (estimated to be 40% of sales), he gives 10% discount. If customers include a credit card number for either internet or mail order (estimated 30% of sales), they receive 5% discount. The remaining collections are estimated as follows:
One month following
15%
Two months following
6%
Three months following
4%
Uncollectable
5%

Sales forecast are as follows:
September
140 units
October
240 units
November
330 units
December
420 units
January
Business terminated

Max plans to pay his supplier 50% in the month of purchase, and 50% in the following month. A 6% discount is granted on payments made in the month in the month of purchase. However, Max will not be able to take any discounts on the September purchases because of cashflow constraints. All September purchases will be paid for in October.

Max has 50 players on hand (purchased in August and to be paid in September), and plans to maintain enough end-of-month inventory to meet 70% of the next month’s sales.
Required:
Prepare schedules for monthly budgeted cash receipts & cash disbursements & the cash budget . During which month will Max need to finance purchases?

Explain each step Properly

Answer 1