Question

Information pertaining to Noskey Corporation’s sales revenue follows:

	November 2015 (Actual)		December 2015 (Budgeted)		January 2016 (Budgeted)
Cash sales	$	155,000	$	145,000	$	90,000
Credit sales		330,000		465,000		240,000
Total sales	$	485,000	$	610,000	$	330,000

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 2015 from November 2015 credit sales. (Do not round intermediate calculations.)

      

2.	Budgeted total cash receipts in January 2016. (Do not round intermediate calculations.)

      

3.	Budgeted total cash payments in December 2015 for inventory purchases. (Do not round intermediate calculations.)

      

Answer 1

1. Budgeted cash collections in December 2015 from November 2015 credit sales is $125,400 calculated below.

Schedule of expected Cash collections
	Month
Particulars	November
November Credit sales	330,000
Uncollectible credit sales (5% of 330,000)	16,500
Collectible credit sales (95% of 330,000)	313,500
Credit sales collected in November (60% of 313,500)	188,100
Credit sales collected in December (40% of 313,500)	125,400

2. Budgeted total cash receipts in January 2016 is $403,500

Schedule of expected Cash collections
		Month
Particulars		January
December Credit sales		465,000
Uncollectible credit sales (5% of 465,000)		23,250
Collectible credit sales (95% of 465,000)		441,750
Credit sales collected in December (60% of 441,750)		265,050
Credit sales collected in January (40% of 441,750)	(a)	176,700
January Cash sales	(b)	90,000
January Credit sales		240,000
Uncollectible credit sales (5% of 240,000)		12,000
Collectible credit sales (95% of 240,000)		228,000
Credit sales collected in january (60% of 228,000)	(c )	136,800
Total collections in january	a+b+c	403,500

3. Budgeted total cash payments in December 2015 for inventory purchases is $319,725

	November	December
Purchases
70% of next month sales	427,000	231,000
30% of current month sales	145,500	183,000
Total inventory to purchase	572,500	414,000
Purchase cost is 60% of the selling price so purchase is	343,500	248,400
Paid for previous month purchase		257,625
Paid for current month purchase		62,100
Total payments in December		319,725