The Alec Corporation Sells Inflatable Pools

question 206

Essay

The Alec Corporation sells inflatable pools. On June 30, there were 105 pools in ending inventory, and accounts receivable had a balance of $12,000. Sales of inflatable pools (in units)have been budgeted at the following levels for the upcoming months:
The company has a policy that the ending inventory of inflatable pools should be equal to 30% of the number of pools to be sold in the following month. The Outdoor Leisure Store sells the inflatable pools for $100 each. The company's collection history shows that 30% of the sales in a month are paid for by customers in the month of sale, while the remainder is collected in the following month.
Required:
a. Prepare a merchandise purchases budget showing how many pools should be purchased in each of the months including July, August, and September.
b. Prepare a cash collections budget for each of the months including July, August, and September.

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Definitions:

Depreciation

The accounting process of allocating the cost of a tangible asset over its useful life, reflecting wear and tear, age, or obsolescence.

Net Working Capital

The difference between a company's current assets and its current liabilities, indicating the short-term liquidity position.

Tax Rate

The rate designated by the state to collect taxes from the profits or income of individuals or firms.

Profit Margin

A measure of profitability calculated as net income divided by revenues.