Dow Corporation sells a product for $50. Budgeted sales for the first four months of 20x1 are as follows: Total Sales Cash Sales Credit Sales January $1,000,000 $200,000 $800,000 February 1,200,000 240,000 960,000 March 1,300,000 260,000 1,040,000 April 1,100,000 220,000 880,000 Collections of credit sales are 60% in the month of sale, 20% in the month following sale, and 20% two months following sale. No uncollectible accounts are expected. The company budgets a gross margin of 30% of sales. Budgeted Operating Expenses Per Month Wages $10,000 Advertising 7,500 Depreciation 5,000 Other operating expenses 2% of sales All cash operating expenses are paid as incurred. The company’s budgeted cash balance on March 1, 20X1 is $100,000. The company targets inventory purchases each month equal to 80% of the subsequent month’s sales at cost. Purchases are made on account and paid 50% in the month of purchase, 40% in the following month, and 10% two months after the purchase. 1. What are the estimated cash collections in March? 2. What is the expected balance of accounts receivable at March 31?
