Randall Company is a merchandising company that sells a single product. The comp

Question

Randall Company is a merchandising company that sells a single product. The company's inventories, production, and sales in units for the next three months have been forecasted as follows: October November December Beginning inventory 19,000 19,000 19,000 Merchandise purchases 57,000 67,000 32,000 Sales 57,000 67,000 37,000 Ending inventory 19,000 19,000 14,000 Units are sold for $12 each. One fourth of all sales are paid for in the month of sale and the balance are paid for in the following month. Accounts receivable at September 30 totaled $465,000. Merchandise is purchased for $6 per unit. Half of the purchases are paid for in the month of the purchase and the remainder are paid for in the month following purchase. Selling and administrative expenses are expected to total $135,000 each month. One half of these expenses will be paid in the month in which they are incurred and the balance will be paid in the following month. There is no depreciation. Accounts payable at September 30 totaled $305,000. Cash at September 30 totaled $95,000. A payment of $315,000 for purchase of equipment is scheduled for November, and a dividend of $215,000 is to be paid in December.

Prepare a schedule of expected cash collections for each of the months of October, November, and December

Prepare a schedule showing expected cash disbursements for merchandise purchases and selling and administrative expenses for each of the months October, November, and December.

Prepare a cash budget for each of the months October, November, and December. There is no minimum required ending cash balance

Required:

Explanation / Answer

The problem is related with cash budget. It is the amount of cash available at the end of the month. At the begining of the month, there will be some cash balance. With this figure, all collections of the month are added. Then all monthly payments are deducted. Balance is closing cash balance.

First statement is showing cash colection. It is from sales only. Quantitities are sold at $14 per unit. Oe fourth of monthly sales is collected in the same month. Balance in the subsequent month.

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Next schedule is the payment for purchase of merchadise at $6 per uit. 50% of the monthly purchase are paid in the same moth. Balance in subsequent month. Also there is payment of selling and administrative expenses on the same basis. It is shown in the schedule below:

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Fially cash budget are prepared on mothly basis considering all cash flows:

Schedule of expenses for cash collection October November December 1. Beginning Inventories 19,000 19,000 19,000 2. Purchase 57,000 67,000 32,000 3. Total availability [1+2] 76,000 86,000 51,000 4. Sales 57,000 67,000 37,000 5. end inventories [3-4] 19,000 19,000 14,000 6. sale price per unit $14 $14 $14 7. Total sale value [4x6] $798,000.00 $938,000.00 $518,000.00 8. Collected in the month of sale [1/4] $     199,500.00 $    234,500.00 $            129,500.00 9. Collected in subsequent month $     465,000.00 $    598,500.00 $            703,500.00 Total collection of the month [8+9] $     664,500.00 $    833,000.00 $           833,000.00 Note: septemebers receivable was 465,000. It is collected in October

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