You are operating a retail store that carries only one product. Geezer Wheels! E

Question

You are operating a retail store that carries only one product. Geezer Wheels! Expected sales for a nine month period are:

Feb        100

March   200

April       400

May       500

June      700

July        1100

Aug.       900

Sep.       600

Oct.        400

1.You feel that these estimates are very uncertain and that the demand for the item miht grow. Due to this concern, you want to maintain an end of month inventory equal to 50% of each approaching month. You expect to begin May with only 100 units on hand. Prepare a month –by-month purchases budget for May, June and July.

2.You want to attach 4 streamers (for the handle bars) to each unit when it arrives into your inventory. Your family manufactures the streamers as a separate business. Since there is little risk or lead time involved, a 10% inventory is all that is required at the beginning of each month. Budget purchases for the month of May and June. Beginning inventory for May us based upon this 10% calculation.

3.You also want to give two Pogo Sticks to each buyer (at the time a bike is sold).You want to maintain a 20% month-end-inventory based on the coming month's needs. Budget purchases for May and June for these Pogo Sticks. Beginning inventory for May is based upon this 20% calculation.

4.You are now going to budget for cash receipts for May, June and July. These things sell for $100 each and 40% are sold on credit. Credit sales are collected as follows: 50% in the month of sale, 30% in the following month, 16% in the second month following, % written off in the third month following the sale.

Please I need full explanations and details. Thank you

Explanation / Answer

Feb Mar Apr May Jun Jul Aug Sep Oct Expected sales 100 200 400 500 700 1100 900 600 400 1) Purchase Budget May Jun Jul August Apr closing balance - 50% of following month expected sale 350 550 450 300 250 Expected sales 500 700 1100 1100 400 Total units required 850 1250 1550 1400 650 Less : opening stock 100 350 550 450 200 Monthly purchase required 750 900 1000 950 450 2) May Jun Jul August Monthly purchase required 750 900 1000 950 Units required 4 4 4 4 Total streamers required 3000 3600 4000 3800 Closing streamers required - 10% 360 400 380 0 Total streamers required 3360 4000 4380 Less : opening streamers 180 360 400 streamers purchase budget 3180 3640 3980 3) May Jun Jul Expected sales 500 700 1100 Pogo sticks required 2 2 2 reqirement for sale units 1000 1400 2200 closing stock required 280 440 Pogo sticks required 1280 1840 less : opening stick 160 280 purchase of pogo sticks 1120 1560 4) Cash receipts Mar Apr May Jun Jul Expected sales 200 400 500 700 1100 selling price 100 100 100 100 100 Sales budget 20000 40000 50000 70000 110000 Credit sales - 40% 8000 16000 20000 28000 44000 collection March sales 1280 April sales 4800 2560 May sales 10000 6000 3200 June sales 14000 8400 July sales 22000 collection from credit sales 16080 22560 33600 Cash sales - 60% 30000 42000 66000 Total cash receipts 46080 64560 99600

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