Question

Information pertaining to Noskey Corporation’s sales revenue follows:

	November 2018 (Actual)				December 2018 (Budgeted)				January 2019 (Budgeted)
Cash sales	$	80,000			$	100,000			$	60,000
Credit sales		240,000				360,000				180,000
Total sales	$	320,000			$	460,000			$	240,000

Management estimates 5% of credit sales to be uncollectible. Of collectible credit sales, 60% is collected in the month of sale and the remainder in the month following the month of sale. Purchases of inventory each month include 70% of the next month’s projected total sales (stated at cost) plus 30% of projected sales for the current month (stated at cost). All inventory purchases are on account; 25% is paid in the month of purchase, and the remainder is paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling price.

Required:

Determine for Noskey:

1. Budgeted cash collections in December 2018 from November 2018 credit sales.

2. Budgeted total cash receipts in January 2019.

3. Budgeted total cash payments in December 2018 for inventory purchases.

Information pertaining to Noskey Corporation’s sales revenue follows: November 2018 (Actual) December 2018 (Budgeted) January 2019 (Budgeted) Cash sales $ 80,000 $ 100,000 $ 60,000 Credit sales 240,000 360,000 180,000 Total sales $ 320,000 $ 460,000 $ 240,000 Management estimates 5% of credit sales to be uncollectible. Of collectible credit sales, 60% is collected in the month of sale and the remainder in the month following the month of sale. Purchases of inventory each month include 70% of the next month’s projected total sales (stated at cost) plus 30% of projected sales for the current month (stated at cost). All inventory purchases are on account; 25% is paid in the month of purchase, and the remainder is paid in the month following the month of purchase. Purchase costs are approximately 60% of the selling price. Required: Determine for Noskey: 1. Budgeted cash collections in December 2018 from November 2018 credit sales. 2. Budgeted total cash receipts in January 2019. 3. Budgeted total cash payments in December 2018 for inventory purchases.

Answer 1

1.

Calculation of Budgeted cash collections in December 2018 from November 2018 credit sales

Credit sales of November = $240,000

Out of $240,000, 5% i.e. $12,000 is uncollectible.

Collectible amount of credit sales of November = 240,000 - 12,000

= $228,000

Out of $228,000, 60% will be collected in November and 40% in December.

Hence, Budgeted cash collections in December 2018 from November 2018 credit sales = 228,000 x 40%

= $91,200

2.

Calculation of Budgeted total cash receipts in January 2019

Credit sales of December = $360,000

Out of $360,000, 5% i.e. $18,000 is uncollectible.

Collectible amount of credit sales of December = 360,000 - 18,000

= $342,000

Out of $342,000, 60% will be collected in December and 40% in January.

Hence, Budgeted cash collections in January 2019 from December 2018 credit sales = 342,000 x 40%

= $136,800

Budgeted total cash receipts in January 2019 = Cash sales of January + Budgeted cash collections in January 2019 from December 2018 credit sales

= 60,000 + 136,800

= $196,800

3.

Calculation of Budgeted total cash payments in December 2018 for inventory purchases

Purchases of inventory each month include 70% of the next month’s projected total sales (stated at cost) plus 30% of projected sales for the current month (stated at cost). Purchase costs are approximately 60% of the selling price.

Hence, purchases of December = [(240,000 x 70%) + (460,000 x 30%)] x 60%

= $[168,000 + 138,000] x 60%

= 306,000 x 60%

= $183,600

Hence, purchases of November = [(460,000 x 70%) + (320,000 x 30%)] x 60%

= $[322,000 + 96,000] x 60%

= 418,000 x 60%

= $250,800

All inventory purchases are on account; 25% is paid in the month of purchase, and the remainder is paid in the month following the month of purchase.

Budgeted total cash payments in December 2018 for inventory purchases = 25% of December purchases + 75% of November purchases

= 183,600 x 25% + 250,800 x 75%

= 45,900 + 188,100

= $234,000

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