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	$	120,000		$	99,000		$	97,000
Credit sales		120,000			118,800			106,700
Total	$	240,000		$	217,800		$	203,700

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 $193,000).

Answer 1

Statement showing calculation of Cash receivable
	November	December
Cash sales	$          99,000	$          97,000
Credit sales of october	$          45,087 (112,718*40%)
Credit sales of november	$          66,954 (111,590*60%)	$          44,636 (111,590*40%)
Credit sales of december		$          60,135 (100,225*60%)
Total cash collected	$       211,041	$       201,771

Note: 60% cash collected of credit sales in month of sales and next 40% in next month.

Statement showing calculation of cash received from credit sales
	October	November	December
Total credit sales	$       120,000	$       118,800	$      106,700
Total credit sales receivable	$       114,000 (120,000*95%)	$       112,860 (118,800*95%)	$      101,365 (106,700*95%)
Cash discount on credit sales of 1.5% on 75% credit sales collectible	$          (1,283) (114,000*75%*1.5%)	$          (1,270) (112,860*75%*1.5%)	$          (1,140) (101,365*75%*1.5%)
Total credit sales collectible after cash discount	$       112,718	$       111,590	$      100,225

Note:

Credit sales 95% of cash is collectible and than cash discount provided on 75% collectible sales at 1.5%

Statement showing calculation of cash disbursements
	November	December
Cash paid for inventory purchase of october	$       121,968 (152,460*80%)
Cash paid for inventory purchase of November	$          28,518 (142,590*20%)	$       114,072 (142,590*20%)
Cash paid for inventory purchase of December		$          27,020 (135,100*20%)
	$       150,486	$       141,092

Not: Cash paid 20% in month of purchases and 80% in following month

Statement showing calculation of inventory purchases
	October	November	December	January
Total sales	$       240,000	$       217,800	$      203,700	$      193,000
Gross profit=30%	$          72,000 (240,000*30%)	$          65,340 (217,800*30%)	$         61,110 (203,700*30%)	$         57,900 (193,000*30%)
Cost of sales	$ 168,000	$       152,460	$      142,590	$      135,100
Inventory purchases	$       152,460	$       142,590	$      135,100

Inventory purchases are made as 100% of the cost of sales of next month

Cost of sales=Total sales-Gross profit

Gross profit=Total sales*30%