Kat Ltd.s September balance sheet contains the following information:

Cash	$	37,500	(dr)
Accounts receivable.		126,000	(dr)
Allowance for doubtful accounts		2,800	(cr)
Merchandise inventory		26,250	(dr)

Management has designated $37,500 as the firms minimum monthly cash balance. Other information about the firm and its operations is as follows:

1. Sales revenues of $350,000, $420,000, and $312,500 are expected for October, November, and December, respectively. All goods are sold on account.
2. The collection pattern for accounts receivable is 60% in the month of sale, 39% in the month following the month of sale, and 1% uncollectible, which is set up as an allowance.
3. Cost of goods sold is 60% of sales revenues.
4. Managements target ending balance of merchandise inventory is 10% of the current months budgeted cost of goods sold.
5. All accounts payable for inventory are paid in the month of purchase.
6. Other monthly expenses are $49,250, which includes $3,500 of depreciation and $2,000 of bad debt expense.
7. In the event of a shortfall, the company borrows money. In contrast, in the event of excess cash, the company invests in short-term investments. Borrowings and investments are assumed to be made at the end of a month in increments of $6,250.
8. Interest on borrowings is 10% per year, payable every quarter, on the accumulated amount of the loan; similarly, interest earned on investments is 8% per year on the accumulated investments and is received every quarter. Investments can be matured and the principal amount redeemed in June or December of a year.

Required: 1. Prepare a merchandise purchases budget for October and November.