Question

Martin Clothing Company is a retail company that sells hiking and other outdoor gear specially made for the desert heat. It sells to individuals as well as local companies that coordinate adventure getaways in the desert for tourists. The following information is available for several months of the current year:

Month	Sales		Purchases		Cash Expenses Paid
May	$	95,000	$	68,000	$	23,000
June		116,000		87,000		26,000
July		137,000		115,000		36,000
August		134,000		79,000		30,800

The majority of Martin’s sales (70 percent) are cash, but a few of the excursion companies purchase on credit. Of the credit sales, 40 percent are collected in the month of sale and 60 percent are collected in the following month. All of Martin’s purchases are on account with 40 percent paid in the month of purchase and 60 percent paid the following month.

Required:
1. Determine budgeted cash collections for July and August. (Round your intermediate calculations and final answers to nearest whole dollar.)

  

2. Determine budgeted cash payments for July and August.

Answer 1

It is given that 60% of the credit sales are collected in the following month of sales. Means 60% of the credit sales made in the month of June will be collected in the month of July and 60% of the credit sales made in the month of July will be collected in the month of August and the same is for credit purchases also.

1. Budgeted cash collections for July and August

	June	July	August
(a) Total sales	$116,000	$137,000	$134,000
(b) Cash sales [ 70% of (a) ]	$81,200	$95,900	$93,800
(c) Credit sales [ (a) - (b) ]	$34,800	$41,100	$40,200
(d) Collected in the month of sales [ 40% of (c) ]	-	$16,440	$16,080
(e) Collected in the following month	-	$20,880 [ $34,800 * 60% ]	$24,660 [ $41,100 * 60% ]
Total cash collection [ (b) + (d) + (e) ]	-	$133,220	$134,540

2. Budgeted cash payments for July and August

	June	July	August
(a) Credit purchases	$87,000	$115,000	$79,000
(b) Paid in the month of purchase [ 40% of (a) ]	-	$46,000	$31,600
(c) Paid in the following month	-	$52,200 [ $87,000 * 60% ]	$69,000 [ $115,000 * 60% ]
(d) Cash expenses paid	-	$36,000	$30,800
Total cash paid [ (b) + (c) + (d) ]	-	$134,200	$131,400

Note : June month's data is used in the solution to support the calculations of July month

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