Question

Oulum is a company selling consumer staples. During a period, the company had the following budgeting plans. • The company budgeted its April sales as Dh900,000, May sales as Dh840,000, and June sales as Dh800,000. . From the sales to be made, the company expected to collect 80% of its credit sales in the month of sale and 16% in the month following the sale. Due to the poor economic environment, the company expected that 4% of the sale would eventually become uncollectible • The company expected its cost of goods sold to be 70% of its sales. • The company planned to have an ending inventory of finished goods at 60% of the cost of goods sold in the following month. Moreover, the company will pay for the goods in the month following the purchase. • The April beginning balance in the accounts receivable account is Dh134,000. • The April beginning balance in the accounts payable account is Dh508,000. Required: a. Prepare a Schedule of Expected Cash Collections for April and May. (4 marks) b. Prepare a Merchandise Purchases Budget for April and May. (6 marks)

Answer 1

Schedule of Expected Cash Collections
	April	May	June
Sales	900,000	840,000	800,000
Schedule of Expected Cash Collections
Accounts receivables	134,000	-
April sales	720,000	144,000
May sales	-	672,000
Total cash collections	854,000	816,000
Merchandise Purchases Budget
	April	May	June
Sales	900,000	840,000	800,000
Cost of goods sold	630,000	588,000	560,000
Add: Ending inventory	352,800	336,000
Total needed	982,800	924,000
Less: Beginning inventory	378,000	352,800
Required Purchase	604,800	571,200