Problem

Marshall Department Stores has budgeted sales revenues as follows:

Credit sales July $250,000

August 190,000

September 150,000

October 140,000

In the past, 75% of the credit sales were collected in the month of sale, 20% were collected in the first month following the sale and 5% in the second month following the sale. Purchases of inventory are all on credit and 28% is paid in the month of purchase and 72% in the month following purchase. Budgeted inventory purchases are:

July $200,000

August 100,000

September 125,000

October 150,000

Other cash disbursements budgeted: (a) selling and administrative expenses of $20,000 each month, (b) dividends of $50,000 will be paid in September, and (c) purchase of a van in October for $45,000 cash.

The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on September 1 was $50,000.

If money is borrowed, ignore interest

INSTRUCTIONS

(a) Prepare separate schedules for (1) expected collections from customers and (2)expected payments for purchases of inventory.

(b) Prepare a cash budget for the months of September and October.