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3. (15 pts) Fresh and Clean Company sells one product, herbal soap, by the case. On October 1, 20X7, part of the trial balance showed the following CR DR $5,300 16,800 Cash Accounts receivable Allowance for bad debts Merchandise inventory Accounts payable, merchandise 2,000 6,480 8,040 The company pays for its purchases within 10 days of purchase, so assume that one-third of the purchases of any month are due and paid for in the following month. The cost of the merchandise purchased is $12 per case. At the end of each month, it is desired to have an inventory equal in units to 30% of the following month's sales in units. Sales terms include a 1% discount if payment is made by the end of the calendar month. Past experience indicates that 65% of sales will be collected during the month of the sale, 25% in the following calendar month, 7% in the next following calendar month, and the remaining 3% will be uncollectible. The company's fiscal year begins August 1. $20 Unit selling price August actual sales September actual sales October actual sales November estimated sales Total sales expected in the fiscal year $12,000 42,000 36,000 16,000 $480,000 Exclusive of bad debts, total budgeted selling and general administrative expenses for the fiscal year are estimated at $76,600, of which $19,000 is fixed expense (which includes a $4,300 annual depreciation charge). The Fresh and Clean Company incurs these fixed expenses uniformly throughout

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