(Cash budget) Bill’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:

Bill’s average profit margin on its products is 30 percent of selling price.
Bill’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. Bill’s 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 Bill’s plan to collect from Accounts Receivable during July 1997?

b. How much cash can Bill’s plan to collect in September 1997 from sales made in August?

c. What will be the budgeted dollar value of Bill’s inventory on August 31, 1997?

d. How much merchandise should Bill’s plan to purchase during June 1997?

e. What are Bill’s budgeted cash payments for merchandise during August 1997?
(CMA adapted)LO1

Transcribed Image Text:

Within the discount period On the 30th day 80% 18% 2% Uncollectible Sales for May 1997 were $600,000 and projected sales for the next four months are June July August September $800,000 700,000 800,000 600,000