Question

D. Tomlinson Retail seeks your assistance in developing cash and other budget information for May, June, and July. The store expects to have the following balances at the end of April: Cash Accounts receivable Inventories Accounts payable $ 5,400 489,000 281,400 150, 190 The firm follows these guidelines in preparing its budgets: • Sales. All sales are on credit with terms of 3/10, n/30. Tomlinson bills customers on the last day of each month. The firm books receivables at gross amounts and collects 60% of the billings within the discount period, 25% by the end of the month, and 9% by the end of the second month. The firm's experience suggests that 6% is likely to be uncollectible and is written off at the end of the third month. • Purchases and expenses. All purchases and expenses are on open account. The firm pays its payables over a 2-month period with 54% paid in the month of purchase. Each month's units of ending inventory should equal 105% of the next month's cost of sales. The cost of each unit of inventory is $20. Selling, general, and administrative (SG&A) expenses, of which $2,500 is depreciation, equal 15% of the current month's sales. Actual and projected sales follow: Month March April May Dollars $399,000 408,000 402,000 Units 13,300 13,600 13,400 Month June July August Dollars $387,000 405,000 411,000 Units 12,900 13,500 13,700

Answer 1

D. Tomlinson D. Tomlinson Budgeted Merchandise Purchases May and June July 13,500 $20 $2,70,000 Sales (in units) Cost per unit Cost of Goods Sold (CGS) Ending inventory (105% of next month's CGS) Total needed Beginning inventory (105% of this month's CGS) Budgeted Merchandise Purchases May 13,400 $20 $2,68,000 $2,70,900 $5,38,900 $2,81,400 $2,57,500 June 12,900 $20 $2,58,000 $2,83,500 $5,41,500 $2,70,900 $2,70,600 S, G, & A expenses: Sales revenue S, G, & A expense ratio Total S, G, & A expense Less: Depreciation Out-of-pocket S, G & A expense May $4,02,000 15.00% $60,300 $2,500 $57,800 June $3,87,000 15.00% $58,050 $2,500 $55,550 D. Tomlinson Retail Budgeted Cash Disbursements for June May Merchandise purchases $2,57,500 Out-of-Pocket S, G & A expenses $57,800 Total payables $3,15,300 Payment for the current month's payables (54%) Owed from last month (46%) Budgeted cash outflow for payables June $2,70,600 $55,550 $3,26,150 $1,76,121 $1,45,038 $3,21,159 D. Tomlinson Retail Cash Collections May From last month's (April) credit sales Within the discount period After the discount period ($408,000) x 60% ~ 97% = $408,000 x 25% = $2,37,456 $1,02,000 From credit sales two months ago (i.e., March) Collection of credit sales made in March $399,000 x 9% = $35,910 Total cash collections $3,75,366 D. Tomlinson Retail Gross and Net Balance of Accounts Receivable (AR) as of May 31 Total Sales Remaining AR % AR Balance (Gross) Bad-debt allowance AR Balance (Net) *@ 6% of gross sales dollars March $3,99,000 6% $23,940 $23,940 April $4,08,000 15% $61,200 $24,480 May $4,02,000 100% $4,02,000 $24,120 $4,87,140 $72,540 $4,14,600