Problem:
All sales of Dunn's Building Supplies (DBS) are made on credit. Sales are billed twice monthly on the tenth of the month for the last half of the prior month's sales and on the twentieth of the month for the first half of the current month's sales. The terms of all sales are 2/10, net 30. Based on past experience, the collection experience of accounts receivable is as follows:
Within the discount period 80%
On the 30th day 18%
Uncollectible 2%
The sales value of shipments for May 2005 was $750,000. The forecast sales for the next four months are
June $800,000
July 900,000
August 900,000
September 600,000
DBS's average markup on its products is 20% o the sales price.
DBS purchases merchandise for resale to meet the current month's sales demand and to maintain a desired monthly ending inventory of 25% of the next month's cost of goods sold. All purchases are on credit with terms of net 30. DBS 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 puchases occur unifomly throughout the month.
1. How much cash can DBS plan to collect from account receivable collections during July 2005?
2. How much can DBS plan to collect in September from sales made in August 2005?
3. Compute the budgeted dollar value of DBS inventory on August 31, 2005.
4. How much merchandise should DBS plan to purchase during June 2005?
5. How much should DBS budget in August 2005 for the payment for merchandise purchased?