Stein Apparel is a retail store specializing in women’s fashions. Stein’s management accountant has gathered the following information for Stein Apparel.
Month Sales Purchases
June $42,000 $17,640
July $48,000 $20,160
August $54,000 $22,680
September $50,000 $21,000
Cash is collected from customers in the following manner:
Month of the sale 25%
First month following the sale 40%
Second month following the sale 20%
Third month following the sale 10%
Purchases of inventory are paid as follows:
Cash payment in month of purchase 40%
Cash payment in month following purchase 60%
Labor costs equal 19% of sales
Other operating costs are $15,000 per month which includes $4,000 of depreciation.
Labor and operating costs are paid in the month incurred.
The cash balance on August 1 is $4,000.
Required: Show all supporting calculations for credit.
1. Calculate the amount of cash receipts for July, August and September.
2. Calculate the amount of cash disbursements for July, August and September.
3. Calculate the cash balance at September 30.
4. Discuss two important reasons why Stein Apparel should prepare cash budgets.