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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.
- 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 | ||
- Sales are 20% cash and 80% on account.
- 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.
- 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.
- 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.
- Dividends of $90,000 will be declared and paid in April.
- Land will be sold for$25,000 cash in April.
- Selling and administrative expenses are paid when incurred. Administrative expenses include $25,000 of depreciation.
- The cash balance at March 31 is $ 20,000
Required:
- Prepare a schedule of expected cash collections from sales for April,
- Prepare the following for merchandise inventory:
- An inventory purchases budget for each of the months April
- A schedule of expected cash disbursements for inventory for April .
- 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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