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Cash budget-part 1 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: 60% in the month after the sale is made and 35% 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
70%
In the subsequent month
30%
PrimeTime Sportswear's income statement budget for each of the next four months, newly revised to reflect the success of the firm, follows:
July
August
September
October
Sales
$84,000
$108,000
$136,000
$118,000
Cost of goods sold:
Beginning inventory
$12,000
$28,800
$41,200
$43,800
Purchases
75,600
88,000
97,800
66,200
Cost of goods available for sale
$87,600
$116,800
$139,000
$110,000
Less: Ending inventory
-28,800
-41,200
-43,800
-40,000
Cost of goods sold
$58,800
$75,600
$95,200
$70,000
Gross profit
$25,200
$32,400
$40,800
$48,000
Operating expenses
21,000
25,600
28,600
32,200
Operating income
$4,200
$6,800
$12,200
$15,800
Cash on hand June 30 is estimated to be $75,000. Collections of June 30 accounts receivable were estimated to be $40,000 in July and $30,000 in August. Payments of June 30 accounts payable and accrued expenses in July were estimated to be $48,000.
Required:
a. Prepare a cash budget for July.
b. What is your advice to management of PrimeTime Sportswear?
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