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McMurray & Sons is a retailer of stuffed animals. All items in the store sell for the same $18 selling
price. McMurray estimates that 25% of its sales are for cash and 75% are on account. Other
information regarding the company's budgeted sales and collection of credit sales are as follows:
Budgeted sales in units
November
December
January
February
March
April
5,000
9,000
1,000
2,000
2,500
3,000
McMurray buys its animals from one supplier at a cost of $6 per animal. It pays for all of its
merchandise purchases in the month following purchase. McMurray began January with 100
stuffed animals in inventory. The company has an purchases budget policy of having 10% of the
following month's anticipated sales in stock at the end of every month. December's purchases
totaled $49,200.
McMurray's monthly expenses are as follows:
1,500
15,000
2,500
2,000
7,000
28,000
In addition to these expenses, McMurray pays insurance premiums of $4,000 in January and
June, and pays $9000 in property taxes every February.
McMurray began January with $25,000 in its bank account. The company maintains a minimum cash
balance of $25,000. An open line of credit is available from the company's bank to bolster its cash
position when needed. Any excess cash over $25,000 should be applied against monies
borrowed. (Ignore interest)
REQUIRED:
(1) Prepare a schedule of cash collections for January, February, and March.
(2) Prepare a merchandise purchases budget for January, February, and March.
(3) Prepare a cash budget for January, February, and March.
Sol: (1)
Total sales
Cash sales
Sales of account:
November
December
January
February
March
6075
60750
5400
0
0
0
10935
6750
10800
0
76725
37485
6000
1200
12000
1500
Total needs
Deduct: Beginning Inventory
7200
600
13500
1200
6600
12300
25000
76725
25000
37485
101725
682485
15000
2500
2000
7000
4000
0
15000
2500
2000
7000
0
9000
Sol: (2)
Sol: (3)
Cash Budget
Cash balance, Beginning
Add: collections from sales
Total cash available
Less disbursements
Fos salaries expenses
For advertising expenses
For utilities expenses
For other expenses
Insurance Premium
Property tax
Total disbursments
30500
35500
71225
26985
Financing
Repayment
Borrowing
54000
7775
25000
5400
3415
25000
e as follows:
10% of the
a minimum cash
olster its cash
March
Quarter
46500
99000
11250
24750
0
0
1215
13500
13500
6075
71685
13365
24300
13500
39465
153675
15000
1800
33000
4500
16800
1500
37500
3300
15300
25000
39465
25000
153875
64465
178875
15000
2500
2000
7000
0
0
45000
7500
6000
21000
4000
9000
26500
92500
37965
86175
12000
13000
25000
71400
24190
38965