Reference no: EM13515562

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?