Question

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: 49% in the month after the sale is made and 44% 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 75 %
In the subsequent month 25 %
PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows:
September October November December
Sales $ 41,800 $ 53,700 $ 68,100 $ 58,900
Cost of goods sold:
Beginning inventory $ 5,530 $ 14,600 $ 20,310 $ 22,050
Purchases 37,800 43,700 49,000 32,600
Cost of goods available for sale $ 43,330 $ 58,300 $ 69,310 $ 54,650
Less: Ending inventory (14,600 ) (20,310 ) (22,050 ) (20,360 )
Cost of goods sold $ 28,730 $ 37,990 $ 47,260 $ 34,290
Gross profit $ 13,070 $ 15,710 $ 20,840 $ 24,610
Operating expenses 10,400 13,100 14,300 16,000
Operating income $ 2,670 $ 2,610 $ 6,540 $ 8,610
Cash on hand August 31 is estimated to be $40,240. Collections of August 31 accounts receivable were estimated to be $19,820 in September and $15,330 in October. Payments of August 31 accounts payable and accrued expenses in September were estimated to be $23,840.

Answer 1

Question Completion:

Prepare the cash budget for the months of October and November.

Answer:

PrimeTime Sportswear

Cash Budget:

                                               October   November

Beginning cash balance        $40,420  $34,007

Cash collections                        35,812    44,705

Total cash in hand                 $76,232   $78,712

Total payments                     $42,225   $47,675

Cash balance                        $34,007   $31,037

Explanation:

a) Data and Calculations:

Income Statement Budgets

                                              September October November December

Sales                                        $ 41,800 $ 53,700   $ 68,100   $ 58,900

Cost of goods sold:

Beginning inventory                $ 5,530 $ 14,600   $ 20,310   $ 22,050

Purchases                                 37,800    43,700      49,000      32,600

Cost of goods available       $ 43,330 $ 58,300    $ 69,310   $ 54,650

Less: Ending inventory           (14,600 )  (20,310 )   (22,050 )   (20,360 )

Cost of goods sold              $ 28,730 $ 37,990   $ 47,260   $ 34,290

Gross profit                           $ 13,070   $ 15,710  $ 20,840    $ 24,610

Operating expenses               10,400      13,100      14,300        16,000

Operating income                 $ 2,670    $ 2,610    $ 6,540       $ 8,610

Cash on hand August 31 = $40,420

Collections of August accounts receivable:

September $19,820

October $15,330

Payments of August 31 accounts payable:

September $23,840

Sales collections:

49% in month after sale

44% second month after

7% uncollectible

Purchases and operating expenses payments:

75% in the month

25% following month

                                              September October November December

Sales                                        $ 41,800 $ 53,700   $ 68,100   $ 58,900  

Cash collections:

49% in month after sale            19,820    20,482      26,313       33,369

44% second month after                          15,330       18,392      23,628

Total cash collections                             $35,812   $44,705    $56,997

Purchases                                 37,800    43,700      49,000      32,600

Operating expenses                10,400      13,100       14,300       16,000

Total purchase & operating $48,200  $56,800   $63,300    $48,600

Payments:

75% in the month                    36,150   42,600        47,475     36,450

25% following month              23,840   12,050        14,200       15,825

Total payments                     $52,190 $42,225     $47,675    $36,700