Cash budget — part 1 PrimeTime Sportswear is a custom imprinter that began operations six months ago. Sales have exceeded management’s most optimistic projections. Sales are made on account and collected as follows: 60% in the month after the sale is made and 35% in the second month after sale. Merchandise purchases and operating expenses are paid as follows:
In the month during which the merchandise | |
is purchased or the cost is incurred | 70% |
In the subsequent month | 30% |
PrimeTime Sportswear’s income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows:
| July | August | September | October |
Sales | $84,000 | $108,000 | $ 136,000 | $118,000 |
Cost of goods sold: |
|
|
|
|
Beginning inventory | $12,000 | $ 28,800 | $ 41,200 | $ 43,800 |
Purchases | 75,600 | 88,000 | 97,800 | 66,200 |
Cost of goods available for sale | $87,600 | $116,800 | $ 139,000 | $110,000 |
Less: Ending inventory | (28,,800) | (41,200) | (43,800) | (40,000) |
Cost of goods sold | $58,800 | $ 75,600 | $ 95,200 | $ 70,000 |
Gross profit | $25,200 | $ 32,400 | $ 40,800 | $ 48,000 |
Operating expenses | 21,000 | 25,600 | 28,600 | 32,200 |
Operating income | $4,200 | $ 6,800 | $ 12,200 | $ 15,800 |
Cash on hand June 30 is estimated to be $75,000. Collections of June 30 accounts receivable were estimated to be $40,000 in July and $30,000 in August. Payments of June 30 accounts payable and accrued expenses in July were estimated to be $48,000.
Required:
a. Prepare a cash budget for July.
b. What is your advice to management of PrimeTime Sportswear?
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