Problem:
(Cash budget) Tim's Department Store typically makes 50 percent of its sales on credit. Sales are billed twice monthly, on the 10th of the month for the last half of the prior month's sales and on the 20th of the month for the first half of the current month's sales. All sales are made with terms of 2/10, n/30. Based on past experience, Accounts Receivable are collected as follows:
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Within the discount period
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80%
|
|
On the 30th day
|
18%
|
|
Uncollectible
|
2%
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Sales for May 2000 were $600,000 and projected sales for the next four months Are
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June
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$800,000
|
|
July
|
700,000
|
|
August
|
800,000
|
|
September
|
600,000
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Tim's average profit margin on its products is 30 percent of selling price. Tim's purchases merchandise for resale to meet the current month's sales demand and to maintain a desired monthly ending inventory of 25 percent of the next month's sales. All purchases are on account with terms of n/30. Tim' pays for one-half of a month's purchases in the month of purchase and the other half in the month following the purchase. All sales and purchases occur evenly throughout the month.
a. How much cash can Tim's plan to collect from Accounts Receivable during July 2000?
b. How much cash can Tim's plan to collect in September 2000 from sales made in August?
c. What will be the budgeted dollar value of Tim's inventory on August 31, 2000?
d. How much merchandise should Tim's plan to purchase during June 2000?
e. What are Tim's budgeted cash payments for merchandise during August 2000? (CMA adapted)