Managerial Accounting Case 2

McMurray & Sons is a retailer of stuffed animals. All items in the store sell for the same $18 selling
price. McMurray estimates that 25% of its sales are for cash and 75% are on account. Other
information regarding the company's budgeted sales and collection of credit sales are as follows:
Budgeted sales in units

November
December
January
February
March
April

5,000
9,000
1,000
2,000
2,500
3,000

Credit Sales Collection Pattern

Collected in same month

40%
as sale
Collected 1 month following
50% sale
Collected 2 months following
9% sale
Estimated to be uncollectible
1%

McMurray buys its animals from one supplier at a cost of $6 per animal. It pays for all of its
merchandise purchases in the month following purchase. McMurray began January with 100
stuffed animals in inventory. The company has an purchases budget policy of having 10% of the
following month's anticipated sales in stock at the end of every month. December's purchases
totaled $49,200.
McMurray's monthly expenses are as follows:

1,500
15,000
2,500
2,000
7,000
28,000

Depreciation of store building & fixtures

Salaries and other payroll items
Advertising
Utilities
Other operating expenses

In addition to these expenses, McMurray pays insurance premiums of $4,000 in January and
June, and pays $9000 in property taxes every February.
McMurray began January with $25,000 in its bank account. The company maintains a minimum cash
balance of $25,000. An open line of credit is available from the company's bank to bolster its cash
position when needed. Any excess cash over $25,000 should be applied against monies
borrowed. (Ignore interest)
REQUIRED:

(1) Prepare a schedule of cash collections for January, February, and March.
(2) Prepare a merchandise purchases budget for January, February, and March.
(3) Prepare a cash budget for January, February, and March.

Sol: (1)

Schedule of expected cash collections

January
February
18000
36000
4500
9000

Total sales
Cash sales
Sales of account:
November
December
January
February
March

6075
60750
5400
0
0

0
10935
6750
10800
0

76725

37485

Budget cost of goods sold

Add: Ending Inventory

6000
1200

12000
1500

Total needs
Deduct: Beginning Inventory

7200
600

13500
1200

Required Inventory purchases

6600

12300

25000
76725

25000
37485

101725

682485

15000
2500
2000
7000
4000
0

15000
2500
2000
7000
0
9000

Total cash of collections

Sol: (2)

Merchandise Purchases Budget

Sol: (3)

Cash Budget
Cash balance, Beginning
Add: collections from sales
Total cash available
Less disbursements
Fos salaries expenses
For advertising expenses
For utilities expenses
For other expenses
Insurance Premium
Property tax

Total disbursments

30500

35500

Excess of cash available

71225

26985

Financing
Repayment
Borrowing

54000
7775
25000

5400
3415
25000

ame $18 selling

e as follows:

10% of the

a minimum cash
olster its cash

March

Quarter
46500
99000
11250
24750
0
0
1215
13500
13500

6075
71685
13365
24300
13500

39465

153675

15000
1800

33000
4500

16800
1500

37500
3300

15300

25000
39465

25000
153875

64465

178875

15000
2500
2000
7000
0
0

45000
7500
6000
21000
4000
9000

26500

92500

37965

86175

12000
13000
25000

71400
24190
38965