Purchase, cost of goods sold, and cash collection budgets
The Zel Company operates at local flea markets. It has budgeted the following
sales for the indicated months.
JUNE JULY August
Sales on account $1,500,000 $1,600,000 $1,700,000
Cash sales 200,000 210,000 220,000
Total sales $1,700,000 $1,810,000 $1,920,000
Zel's success in this specialty market is due in large part to the extension of credit terms and the
budgeting techniques implemented by the firm's owner Barbara Zel. Ms. Zel is a recycler; that
is, she collects her merchandise daily at neighborhood garage sales and sells the merchandise
weekly at regional flea markets. All merchandise is marked up to sell at its invoice cost (as
purchased at garage sales) plus 25%. Stated differently, cost is 80% of selling price.
Merchandise inventories at the beginning of each month are 30% of that month's forecasted cost
of goods sold. With respect to sales on account, 40% of receivables are collected in the month of
sale, 50% are collected in the month following, and 10% are never collected.
Question:
What is the anticipated cost of goods sold for June, what is the beginning inventory for July
expected to be, what are July purchases expected to be, and what are the forecasted July cash
collections?
