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7-29 Purchases and Sales Budgets
All sales of Carol’s Jeans and Uniforms (CJU) are made on credit. Sales are billed twice monthly, on the fifth of the month for the last half of the prior month’s sales and on the twentieth of the month for the first half of the current month’s sales. For accounts paid within the first 10 days after the billing date, CJU gives customers a 2% discount; otherwise the full amount is due within 30 days of billing date, and customers that do not pay within the 10-day period generally wait the full 30 days before making payment. Based on past experience, the collection experience of accounts receivable is:
Within the 10-day discount period
80%
At 30 days after billing
18%
Uncollectible
2%
Sales for May 20X8 were $750,000. The forecast sales for the next four months are
June
800,000
July
900,000
August
900,000
September
600,000
CJU’s average markup on its products is 40% of the sales price. CJU purchase merchandise for resale to meet the current month’s sales demand and to maintain a desired monthly ending inventory of 25% of the next month’s cost of goods sold. All purchases are on credit. CJU pays for one-half of a month’s purchases in the month of purchases and the other half in the month following the purchase. All sales and purchases occur uniformly throughout the month.
1. How much cash can CJU plan to collect from accounts receivable collections during July 20X8?
2. Compute the budgeted dollar value of CJU inventory on May 31, 20X8.
3. How much merchandise should CJU plan to purchase during June 20X8?
4. How much should CJU budget in August 20X8 for cash payments for merchandise purchased?

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