At March 31 Streuling Enterprises, a merchandising firm, had an inventory of 38,000 units, and it had accounts receivable totaling $85,000. Sales, in units, have been budgeted as follows for the next four months:
Streuling's board of directors has established a policy to commence in April that the inventory at the end of each month should contain 40% of the units required for the following month's budgeted sales.
The selling price is $2 per unit. One-third of sales are paid for by customers in the month of the sale, the balance is collected in the following month.
a. Prepare a merchandise purchases budget showing how many units should be purchased for each of the months April, May, and June.
b. Prepare a schedule of expected cash collections for each of the months April, May, and June.
The expert examines purchase budgets and expected cash collection. A schedule of expected cash collections for each of the months are determined.