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 $ 105,000 $ 87,000 $ 91,000 Credit sales 105,000 104,400 100,100 Total $ 210,000 $ 191,400 $ 191,100 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 $184,000).

Answer 1

Requirement 1

Budgeted Cash Receipts
	October	November	December
Cash Receipts	$    105,000	$    87,000	$      91,000
Cash collected from Customers *	$      59,177	$    98,290	$      95,541
Total Cash Receipts	$    164,177	$ 185,290	$    186,541

See the calculation for Cash collected from Customer (1)

Requirement 2

Budgeted Cash Disbursement
	Oct.	Nov.	Dec.
20% Paid in the month of purchase	$          27,916	$       26,754	$       25,760
80% Paid in the following month		$    111,664	$    107,016
Total Cash Disbursement	$          27,916	$    138,418	$    132,776

See Calculation of Inventory Purchased (2)

Note (1)

Cash Collected from Customer (AR)
Months	Oct.	Nov.	Dec.
Credit sales	$    105,000	$ 104,400	$    100,100
Less: Uncollectible- 5%	$        5,250	$       5,220	$        5,005
Collectibles :	$      99,750	$    99,180	$      95,095
60% in the month of sales	$      59,850	$    59,508	$      57,057
40% in following Months		$    39,900	$      39,672
Expected Cash Collection (ECC)	$      59,850	$    99,408	$      96,729
Less: Discount @ 1.5%	$            673	$       1,118	$        1,088
Cash Collected after Discount	$      59,177	$    98,290	$      95,541
Cash collected within 10 days-75% of ECC	$      44,888	$    74,556	$      72,547
Discount on above @1.5%	$            673	$       1,118	$        1,088

Note: 2

Calculation of Inventory Purchased
	Oct.	Nov.	Dec.	Jan
Cash Sales	$   105,000	$    87,000	$    91,000
Credit sales	$   105,000	$ 104,400	$ 100,100
Total Projected Sales	$   110,000	$ 199,400	$ 191,100	$ 184,000
Less: Gross Profit: 30% of Sales	$      33,000	$    59,820	$    57,330	$    55,200
Cost of Purchases (Goods Sold)	$      77,000	$ 139,580	$ 133,770	$ 128,800
Inventory Purchase (100%)	$   139,580	$ 133,770	$ 128,800

Inventory purchases are 100% of the cost of the following month's sales.