Items 1 and 2 are based on the following information:
Operational budgets are used by a retail company for planning and controlling its business activities. Data regarding the company’s monthly sales for the last 6 months of the year and its projected collection patterns are shown below.
The cost of merchandise averages 40% of its selling price. The company’s policy is to maintain an inventory equal to 25% of the next month’s forecasted sales. The inventory balance at cost is $80,000 as of June 30.
|
Forecasted Sales |
||
|
July |
$775,000 |
|
|
August |
750,000 |
|
|
September |
825,000 |
|
|
October |
800,000 |
|
|
November |
850,000 |
|
|
December |
900,000 |
|
|
Types of Sales |
||
|
Cash sales |
20 |
% |
|
Credit sales |
80 |
% |
|
Collection Pattern for Credit Sales |
||
|
In the month of sale |
40 |
% |
|
In the first month following the sale |
57 |
% |
|
Uncollectible |
||
|
3 |
% |
The budgeted cost of the company’s purchases for the month of August would be
CIA adapted
- $302,500
- $305,000
- $307,500
- $318,750
The company’s total cash receipts from sales and collections on account that would be budgeted for the month of September would be
- $757,500
- $771,000
- $793,800
- $856,500