A Company is a large retail firm whose sales are all on credit. Sales are billed twice monthly, on the 10^th of the month for the last half of the prior months sales and on the 20^th of the month for the first half of the current months sales. The terms of all sales are 2/10, net 30. Based on past experience, the collection pattern of accounts receivable is as follows:

Within the discount period............ 80%

On the 30^th day............................ 18

Uncollectible................................ 2

Actual sales for May 20x1 and budgeted sales for the next four months are:

May (actual)...................... $500,000

June................................... 600,000

July................................... 700,000

August............................... 900,000

September........................... 400,000

A Companys gross profit rate is 20 percent of sales.

The company purchases merchandise inventory each month as needed to meet the current months sales demand and to maintain a desired monthly ending inventory of 25 percent of the next months sales. All purchases are on credit with terms of net 30. A Company pays for one-half of a months purchases in the month of purchase and the other half in the month following purchase.

All sales and purchases occur uniformly throughout the month.

Instructions: Prepare the following budgets for 20x1. This problem requires careful thought!

1. Prepare a merchandise purchases budget for each of the months June, July, and August 20x1.

2. Compute the budgeted cash payments for merchandise for August 20x1.

3. Determine the amount of cash that A Company can plan to collect in September for sales made in August 20x1.

4. Determine the amount of cash, in total, that A Company can plan to collect from accounts receivable during July 20x1.