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
Type 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%
a. $757,500
b. $771,000
c. $793,800
d. $856,500
Answer: B
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
Type 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 company's total cash receipts from sales and collections on account that would be budgeted for the month of September would be
a. $757,500
b. $771,000
c. $793,800
d. $856,500
Answer: B
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