Western Company is an online retailer that purchases merchandise for resale. The company sells a single product. Inventory, production, and sales data (in units) have been forecasted for the next three months and are listed below:
|
January
|
February
|
March
|
|
Beginning Inventory
|
10,000
|
10,000
|
10,000
|
|
Merchandise Purchases
|
60,000
|
70,000
|
35,000
|
|
Sales
|
60,000
|
70,000
|
40,000
|
|
Ending Inventory
|
10,000
|
10,000
|
5,000
|
Units are sold for $6 each. One fourth of all sales are paid for in the month of sale and the balance are paid for in the following month. Accounts receivable at December 31 totaled $225,000.
Merchandise is purchased for $3.50 per unit. Half of the purchases are paid for in the month of the purchase and the remainder are paid for in the month following purchase. Selling and administrative expenses are expected to total $60,000 each month. One half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month. Depreciation is $2,000 per month. The accounts payable balance at December 31 totaled $145,000.
Cash at December 31 totaled $40,000. A payment of $150,000 for purchase of equipment is scheduled for February and a dividend of $100,000 is to be paid in March.
1. Prepare a schedule of cash collections for each of the months January, February, and March.
2. Prepare a schedule of showing expected cash disbursements for merchandise purchases and selling and administrative expenses during each of the months January, February, and March.
3. Prepare a cash budget for each of the months January, February, and March. There is no minimum required ending cash balance.