Question

Timpco, a retailer, makes both cash and credit sales (i.e., sales on open account). Information regarding budgeted sales for the last quarter of the year is as follows:

	October			November			December
Cash sales	$	155,000		$	127,000		$	111,000
Credit sales		155,000			152,400			122,100
Total	$	310,000		$	279,400		$	233,100

Past experience shows that 5% of credit sales are uncollectible. Of the credit sales that are collectible, 60% are collected in the month of sale; the remaining 40% are collected in the month following the month of sale. Customers are granted a 1.5% discount for payment within 10 days of billing. Approximately 75% of collectible credit sales take advantage of the cash discount.

Inventory purchases each month are 100% of the cost of the following month’s projected sales. (The gross profit rate for Timpco is approximately 30%.) All merchandise purchases are made on credit, with 20% paid in the month of purchase and the remainder paid in the following month. No cash discounts for early payment are in effect.

Required:

1. Calculate the budgeted total cash receipts for November and December. (Round your intermediate calculations and final answers to the nearest whole dollar amount.)

2. Calculate budgeted cash disbursements for November and December (budgeted total sales for January of the coming year equals $214,000).

Answer 1

Please find below table useful to compute desired results: -

B DE A 1 1 2 Cash sales 3 Collection of October credit sales: November 127000 December 111000 =155000*95%*40%*75%*98.5% =155000*95%*40%*25% 5 6 Collection of November credit sales: =152400*95%*60%*75%*98.5% =152400*95%*60%*25% =152400*95%*40%*75%*98.5% =152400*95%*40% 25% 9 Collection of December credit sales: 11 =122100*95%*60%*75%*98.5% =122100*95%*60%*25% =SUM(C7:C11)+C2 =SUM(B2:BS) 12 Total cash receipts 13 14 2 15 Total sales 16 Cost of sales (70%) 17 Inventory Purchases 18 Payment for October purchases 19 Payment for November purchases 20 Payment for December purchases 21 Budgeted cash payments October 310000 =B15*70% =C16 November 279400 C15*70% =D16 =B17*80% =C17*20% December January 233100 214000 =D15*70% =E15*70% =E16 =C17*80% =D17*20% =D19+D20 =C18+C19

End results would be as follows: -

B D 1 1 November December 2 Cash sales 127.000 111.000 3 Collection of October credit sales: 43,512 14,725 6 Collection of November credit sales: | 64.174 42.782 21.717 14,478 9 Collection of December credit sales: 10 51.415 11 17,399 12 Total cash receipts 271,128 237,075 13 14 2 October November December January 15 Total sales 310,000 279,400 233,100 214.000 16 Cost of sales (70%) 217.000 195,580 163,170 149.800 17 Inventory Purchases 195,580 163,170 149,800 18 Payment for October purchases 156,464 19 Payment for November purchases 32.634 130,536 20 Payment for December purchases 29.960 21 Budgeted cash payments 189,098 160,496