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Problem 13-63 (Algo) Budgeted Purchases and Cash Flows (LO 13-3, 4, 5) Oakley Wholesale Hardware and Supplies (OWHS) sells tools, lumber, and other remodeling
Problem 13-63 (Algo) Budgeted Purchases and Cash Flows (LO 13-3, 4, 5) Oakley Wholesale Hardware and Supplies (OWHS) sells tools, lumber, and other remodeling supplies to commercial contractors. The company controller is compiling cash and other budget information for July, August, and September. On June 30, the company had inventories of $507,500. OWHS sells a wide variety of products, but for budgeting and inventory planning purposes, the company has developed a standard "unit" of inventory that reflects roughly the mix and purchase costs of the items found in inventory and expected sales volume. The inventory value of $507,500 reported above is based on these inventory units. Each inventory unit is assumed to have a purchase price from vendors (for planning purposes) of $25. This number is not expected to change in the next three months. The budget is to be based on the following assumptions: Each month's sales are billed on the last day of the month. Customers are allowed a 5 percent discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). The billings are collected as follows: 75 percent within the discount period, 15 percent by the end of the month, and 8 percent by the end of the following month. Two percent is uncollectible.
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