Question

Allan Corporation has a sales budget for March of $440,000. About 10% are cash

sales and the remainder is sold on account.

The company expects that 60% of credit sales will be collected in the month of the

sale, 25% in the next month and 10% in the following month.

Materials purchased on account are expected to be $250,000. Allan pays 35% in the

month of the purchase, 50% in the month following the purchase and the remaining

15% in the second month after the purchase.

Salaries and wages of the workers are approximately $45,000 per

month. The employees are paid weekly so on average 95% of their wages are paid in the month to which they relate and the remaining 5% is paid in the following month.

Utilities average $4,300 per month.

Rent on the building is $9,000 per month.

Insurance is $3,000 per month and advertising costs are $1,000

per month.

February sales were $320,000 and purchases of materials in February were $170,000;

January sales were $200,000 and purchases of materials in January were $130,000.

The cash balance on March 1st is $5,400.

1.Prepare a schedule of cash collections on accounts receivable for March.

2.Prepare a schedule of cash disbursements on accounts payable for March.

Answer 1

Answer

• All working forms part of the answer
• Requirement 1

Cash Sales for March [440000 x 10%]	$                       44,000
Cash collected for credit sales of:
January [200000 x 90% x 10%]	$                       18,000
February [320000 x 90% x 25%]	$                       72,000
March [440000 x 90% x 60%]	$                    237,600
Total Cash Collected in March	$                    371,600

• Requirement 2

Cash purchases for March [250000 x35%]	$                   87,500.0
Cash paid for credit purchases of:
January [130000 x 15%]	$                   19,500.0
February [170000 x 50%]	$                   85,000.0
Total Cash disbursement on Accounts Payable for March	$                 192,000.0