Problem:
Cash budget-part 1 PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management's most optimistic projections. Sales are made on account and collected as follows: 60% in the month after the sale is made and 35% in the second month after sale. Merchandise purchases and operating expenses are paid as follows:
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In the month during which the merchandise
|
|
|
is purchased or the cost is incurred
|
70%
|
|
In the subsequent month
|
30%
|
PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows:
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July
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August
|
September
|
October
|
|
Sales
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$84,000
|
$108,000
|
$136,000
|
$118,000
|
|
Cost of goods sold:
|
|
|
|
|
|
Beginning inventory
|
$12,000
|
$28,800
|
$41,200
|
$43,800
|
|
Purchases
|
75,600
|
88,000
|
97,800
|
66,200
|
|
Cost of goods available for sale
|
$87,600
|
$116,800
|
$139,000
|
$110,000
|
|
Less: Ending inventory
|
-28,800
|
-41,200
|
-43,800
|
-40,000
|
|
Cost of goods sold
|
$58,800
|
$75,600
|
$95,200
|
$70,000
|
|
Gross profit
|
$25,200
|
$32,400
|
$40,800
|
$48,000
|
|
Operating expenses
|
21,000
|
25,600
|
28,600
|
32,200
|
|
Operating income
|
$4,200
|
$6,800
|
$12,200
|
$15,800
|
Cash on hand June 30 is estimated to be $75,000. Collections of June 30 accounts receivable were estimated to be $40,000 in July and $30,000 in August. Payments of June 30 accounts payable and accrued expenses in July were estimated to be $48,000.
Required:
a. Prepare a cash budget for July.
b. What is your advice to management of PrimeTime Sportswear?