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	$	150,000		$	123,000		$	109,000
Credit sales		150,000			147,600			119,900
Total	$	300,000		$	270,600		$	228,900

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 $211,000).

Answer 1

Timpco
Budgeted total cash receipts					Calculation
Req 1		Nov	Dec		Oct	Nov	Dec
Cash sales		123,000	109,000
Collections on account
Oct sales		57,000	-			=150,000*95%*40%
Nov sales		83,186	56,088			=(147,600*95%*60%*75%*98.5%)+(147,600*95%*60%*25%)	=147,600*95%*40%
Dec sales		-	67,574				=(119,900*95%*60%*75%*98.5%)+(119,900*95%*60%*25%)
Budgeted total cash receipts		263,186	232,662
Budgeted cash disbursements
Req 2	Oct	Nov	Dec		Oct	Nov	Dec
Purchases	189,420	160,230	147,700		=270,600*70%	'=228,900*70%	=211,000*70%
Cash disbursements
Oct Purchases		151,536	-			=189,420*80%
Nov Purchases		32,046	128,184			=160,230*20%	=160,230*80%
Dec Purchases		-	29,540				=147,700*20%
Budgeted cash disbursements		183,582	157,724