The Elliot Corporation sells hammocks. On June 30, there were 70 hammocks in ending inventory and accounts receivable had a balance of $12,000. Sales of hammocks (in units) have been budgeted at the following levels for the upcoming months:
| Accounts receivable, June 30 | $12,000 |
| Number of hammocks budgeted to be sold in July | 350 |
| Number of hammocks budgeted to be sold in August | 420 |
| Number of hammocks budgeted to be sold in September | 370 |
| Number of hammocks budgeted to be sold in October | 300 |
The company has a policy that the ending inventory of hammocks should be equal to 20% of the number of hammocks to be sold in the following month. The Outdoor Leisure Store sells the hammocks for $100 each. The company's collection history shows that 40% 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:
| 1. | Prepare a merchandise purchases budget showing how many hammocks should be purchased |
in each of the months including July, August, and September.
| 2. | Prepare a cash collections budget for each of the months including July, August, and |
September.
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