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Beauty Inc. is a merchandiser that sells spa products to the hotel industry (the company is not a manufacturer). The management of Beauty Inc. is

Beauty Inc. is a merchandiser that sells spa products to the hotel industry (the company is not a manufacturer). The management of Beauty Inc. is planning its cash needs for the month of April. The following information has been assembled to assist in preparing a cash budget for April.

  1. Budgeted monthly income statements for April and May are as follows:
April May
Sales $470,000 $710,000
Cost of goods sold 336,000 504,000
Gross margin 134,000 206,000
Less: Operating expenses:
Selling expense 53,200 96,000
Administrative expense 46,000 41,600
Total operating expenses 99,200 137,600
Net income $ 34,800 $ 68,400
  1. Sales are 20% cash and 80% on account.
  2. Sales on account are collected over a two-month period in the following pattern: 20% collected in the month of sale, 80% collected in the month following the sale. March sales totalled $300,000.
  3. Inventory purchases are paid 50% in the month of purchase. The remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March is $100,000.
  4. At the end of each month, inventory must be on hand equal to 15% of the cost of the merchandise to be sold in the following month. The merchandise inventory at March 31 is $67,200.
  5. Dividends of $90,000 will be declared and paid in April.
  6. Land will be sold for$25,000 cash in April.
  7. Selling and administrative expenses are paid when incurred. Administrative expenses include $25,000 of depreciation.
  8. The cash balance at March 31 is $ 20,000

Required:

  1. Prepare a schedule of expected cash collections from sales for April,
  2. Prepare the following for merchandise inventory:
    1. An inventory purchases budget for each of the months April
    2. A schedule of expected cash disbursements for inventory for April .
  3. Prepare a cash budget for April. Comment on the company's cash position. Is there any action that should/can be taken?

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