All sales of Gamma Electronics Supply are made on credit. Sales are billed twice monthly, on the 10th of the month for sales made in the last half of the prior month, and on the 20th of the month for sales made in the first half of the current month. The terms of sales are 2/10, net 30. The expected collection experience of is as follows:
Within the discount period . . . . . . . . . . . . . . . 80%
On the 30th day . . . . . . . . . . . . . . . . . . . . . . . . 18%
Uncollectible. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%
Sales for the month of May were $750,000. Forecast sales for the next four months are as follows:
June . . . . . . . . . . . . . . . . . . . . . . . . . . . $400,000
July . . . .. . . . . . . . . . . . . . . . . . . . . . . . . 450,000
August . .. . . . . . . . . . . . . . . . . . . . . . . . 450,000
September . . . . . . . . . . . . . . . . . . . . . . 300,000
Gamma’s average markup on its products is 20% of the sales price. Gamma purchases sufficient merchandise for resale to meet the current month’s sales and to have an of 25% of the next month’s forecast sales. All purchases are on credit with terms of net 30. Gamma pays for one-half of a month’s purchases in the month of purchase and the other half in the month following purchase. All purchases and sales occur evenly throughout the month.
Required:
1. How much will be collected in September from sales made in August?
2. What is the amount of expected collections during July?
3. How much merchandise should Gamma purchase in August?
4. State two benefits of cash budgeting.
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