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 $ 95,000 114,000 209,000 December $ 95,000 104,500 Cash sales 115,000 115,000 230,000 Credit sales 199,500 Total 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 $190,000) December November 1 Total cash receipts 2. Budgeted cash disbursements

Answer 1

Solution

Timpco

	November	December
Budgeted Cash Receipts	$202,457	$196,728
Budgeted Cash Disbursements	$144,970	$138,320

Computations:

1. Calculation of the budgeted total cash receipts for November and December:

Budgeted Cash receipts for November –

Cash sales                   $95,000

Add: Accounts receivable (October credit sales):

(115,000 x 95%) x 40% x 75% x 98.5% = $32,283

(115,000 x 95%) x 40$ x 25% = $10,925

Add: November credit sales collection:

(114,000 x 95%) x 60% x 75% x 98.5% = $48,004

(114,000 x 95%) x 60% x 25% = $16,245

Total cash receipts in November = $202,457

Budgeted Cash receipts for December –

Cash sales                   $95,000

Add: Accounts receivable (November credit sales)

(114,000 x 95%) x 40% x 75% x 98.5% = $32,003

(114,000 x 95%) x 40% x 25% = $10,830

Add: December credit sales collection:

(104,500 x 95%) x 60% x 75% x 98.5% = $44,004

(104,500 x 95%) x 60% x 25% = $14,891

Total cash receipts in December = $196,728

Note:

The 40% indicates the percent of credit sales collection in following month of sale.

The 75% indicates the collectible of credit sales that take advantage of 1.5% cash discount.

The 98.5% indicates the collectible credit sale after the cash discount (100 – 1.5 = 98.5%)

The 60% indicates the percent of credit sales collection of the current month sales.

2. Budgeted cash disbursements for November and December:

Cash disbursements for November:

(199,500 x 70%) x 20% = $27,930

(209,000 x 70%) x 80% = $117,040

Budgeted cash disbursements for November = $144,970

Cash disbursements for December:

(190,000 x 70%) x 20% = $26,600

(199,500 x 70%) x 80% = $111,720

Budgeted cash disbursements for December = $138,320

Note:

The gross profit is 30%, hence cost of goods sold or merchandise purchase = 70%

The 20% indicates the amount of merchandise purchases paid in current month.

The 80% indicates the amount of merchandise purchases paid in following month of purchase.