Question 7 (15 points) Alpha Company is a retailer and all sales are billed mont

Question

Question 7 (15 points) Alpha Company is a retailer and all sales are billed monthly, on the 10th of the month following the month of sales. Collection of receivable is 80% within the month of billing, and the remainder by the end of the next month. Except for May the estimated sales for following four months are: May (actual) $500,000; June $600,000; July, $700,000; August $700,000, and September $400,000. Alpha Company experiences a Gross Profit Margin of 20%. Merchandise is purchased to meet the current month's sales demand & to maintain a desired monthly ending merchandise inventory of 25% of the following month's sales. All purchases are on credit, and paid for 10% in the month of purchase, and 90% in the next month. Use this information to determine the following: (Round all dollar values to the nearest dollar and report whole dollars only.) 1. The amount of cash that Alpha Company plans to collect from accounts receivable collections during July 2. The amount of cash that Alpha Company plans to collect from accounts receivable collections during September 3. The ending Merchandise Inventory budgeted to be on hand on July 31. 4. The amount of merchandise that Alpha Company budgets to purchase during July 5. The amount that Alpha Company should budget in August for merchandise payments.

Explanation / Answer

Expected cash from Cash recevables may June July Aug Sep Sales 500000 600000 700000 700000 400000 80% receved in next month 400000 480000 560000 560000 500000*0.80 600000*0.80 700000*0.80 700000*0.80 20% in 2 months 100000 120000 140000 500000*0.20 600000*0.20 700000*0.20 cash received 580000 680000 700000 1 cash expected to collect from accounts recevables in July =$580,000 2 cash expected to collect from accounts recevables in September =$700,000 3 Ending merchandise Inventory Budgeted on hand on july 31 Ending inventory =25% of following month Sales July ending Inventory = August sales * (1- gross profit ratio ) *25% July ending Inventory = $700,000* (1- 0.20) *25% =$140,000 4 marchandise purchased during the July July Opening inventory =July sales *(1- gross profit ratio) *0.25 =$700,000*(1-0.20)*25% =$140,000 Amount in $ sales inn july 7,00,000 Cost of Goods sold (80%*700,000) 5,60,000 Add: opening inventory 1,40,000 7,00,000 Less: ending inventory 1,40,000 merchandise purchased during the july 5,60,000

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