Crash Dobson, former all-state high school football player, owns a retail store that sells new and used sporting equipment. Crash has requested a cash budget for October. After examining the records of the company, you find the following:
Central Drug Store carries a variety of health and beauty aids, including elastic ankle braces. The sales budget for ankle braces for the first six months of the year is as follows:
The owner of Central Drug believes that ending inventories should be sufficient to cover 20 percent of the next month€™s projected sales. On January 1, there were 84 ankle braces in inventory.

Required:
1. Prepare a merchandise purchases budget in units of ankle braces for as many months as you can.
2. If ankle braces are priced at cost plus 60 percent, what is the dollar cost of purchases for each month of your purchases budget?
a. Cash balance on October 1 is $1,980.
b. Actual sales for August and September are as follows:

c. Credit sales are collected over a three-month period: 50 percent in the month of sale, 30 percent in the second month, and 15 percent in the third month. The remaining sales are uncollectible.
d. Inventory purchases average 70 percent of a month€™s total sales. Of those purchases, 40 percent are paid for in the month of purchase. The remaining 60 percent are paid for in the following month.
e. Salaries and wages total $2,000 per month.
f. Rent is $2,700 per month.
g. Taxes to be paid in October are $5,000.
h. Crash usually withdraws $4,000 each month as his salary.
i. Advertising is $500 per month.
j. Other operating expenses total $800 per month.
Crash tells you that he expects cash sales of $10,000 and credit sales of $65,000 for October. He likes to have $2,000 on hand at the end of the month and is concerned about the potential October ending balance.

Required:
1. Prepare a cash budget for October. Include supporting schedules for cash collections and cash payments.
2. Did the business meet Crash€™s desired ending cash balance for October? Assuming that the owner has no hope of establishing a line of credit for the business, what recommendations would you give the owner for meeting the desired cashbalance?

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August September Cash sales Credit sales $15,000 80,000 s 20,000 90,000 Total sales